Economic fault lines

Economic fault lines


For all those who argued that the woes of demonetisation would spell disaster for the BJP in the assembly elections, the message is clear. Prime Minister Narendra Modi and his party have emerged unscathed by a measure that in the eyes of many an economist was poorly conceived, badly executed and certainly would not cure the ills it claimed to address.

Of course, demonetisation was not the only issue before the people. But if they stood in queues, if the cash economy they lived with was crippled and if daily wage labourers suffered, they did not show it in these elections, and certainly not in the bellwether state of Uttar Pradesh. The position can be summed up rather succinctly in the words of the senior Congress leader and former finance minister P Chidambaram, who said: “We lost the political argument but I don’t think we lost the economic argument.”

There’s the obvious and important counter that no one in the Congress has apparently asked: What is the point of winning an economic argument when the political argument is lost? Or what’s the logic of arguing that the walls of the house are still standing when the roof has been blown off?

That the Congress can revel in the economic argument and has failed to articulate a political argument against demonetisation is a window into how it is missing the pulse of the people and why it is seen as becoming politically irrelevant, and this is not a sudden slide.

The party has been used to touting economic arguments through the tenure of Manmohan Singh, who was noted as much as an economics genius as he was as a political novice. Generally speaking, Singh was more comfortable speaking at conferences of economists than at political rallies. But even he understood the significance of a political argument.

Speaking in memory of I G Patel sometime in 2006, the then prime minister had said: “Economic policy making has always involved political choices since it has political consequences…It was not enough that the arguments were intellectually consistent or were mathematically tested. In a democracy such choices had to be also politically defendable and acceptable.”

The vast majority of Indians never did quite understood the nuances of economic reforms of Singh and would be equally far removed from the complex arguments for and against demonetisation discussed in the run up to the Assembly elections.

But what stood out was that the withdrawal of 86% of the Indian currency by value appeared to have been seen as a move aimed in the proper direction – against those who had amassed undue wealth and influence. The intention was good even if the outcome was bad, and that became its USP.

The poor were willing to suffer, it would seem, as long as the rich were made to pay the price. So when the rollout of new notes was not smooth, anger appeared to be directed more at the local bank officials for failing to effectively implement the sweeping agenda even as the political leadership went scot free.

If the lack of any punitive political vote because of demonetisation is sending any signals then, it is that the increasing gap between those who have moved up the socio-economic ladder and those who have not has created some deep fault lines in the polity. In that sense, there is a poor-rich divide that is accentuated in the age of conspicuous consumption.

Flashy cars, luxury apartments and crowded malls are therefore as much a signal of growth as they are of a deepening divide — a tinderbox that raises some questions on social stability and sustainability of our model of development. So what we are seeing in full bloom is not just the lotus but also a class divide based on the premise that some have moved up in an unjust manner, have cornered the goodies of liberalisation and must be made to part with their ill-gotten wealth. Corruption is one part of this story. The other part appears to be the perception of an unfair economic system at work.

Political reward
In the light of this, the economic arguments against demonetisation (the most articulate and reasonable among them coming from Chidambaram himself) said nothing. What mattered in the eyes of the people was that the prime minister took a bold step and at least tried to do something, never mind if it was a disastrous move, economically speaking.

But this reaping of political reward is short-term goodwill. It will require to be built on with policies that translate into a genuine fight against black money, in battling corruption in high places and in addressing the inequality of income and wealth – all issues that remain unaddressed to date.

What this means is that the “new India” the prime minister spoke of on March 26, his first address to the people after the assembly results, cannot be an India known only by GDP growth numbers.

The modern day world is crushing under the weight of inequity and there are growing voices against an order seen globally as unfair and unjust. Consider, as the Oxfam briefing paper released earlier this year notes, the richest 1% has owned more wealth than the rest of the planet.

This is not the growth model that India can or should adopt. Oxfam also reports that the richest 1% own 53% of India’s wealth, according to the data from Credit Suisse. This is far ahead of the United States, where the richest 1% own 37.3% of total wealth.

Correcting this will require a leadership that is politically willing to take some bold steps in spending for the poor, investing heavily in health and education, offering social protection to the weakest and making an example of those who have plundered the nation — irrespective of social status, political leaning or religious affiliation. That is the only way good economics can meet healthy politics and take the fruits of growth to all.

(Rattanani is Editor, SPJIMR; Pattnaik is Professor, SPJIMR)