Cashless and witless, the Opposition will pray that Modi trips up on executing demonetisation in the next crucial 30 days of December. – Minhaz Merchant
With the exception of the JD(U), the cash-deprived Opposition has come together in what some cruelly call a coalition of the corrupt.
Prime Minister Narendra Modi has meanwhile seized the moral high ground in a Them vs. Us binary: you are either corrupt (and oppose demonetisation) or you are clean (and support demonetisation).
The message resonates politically. It is as powerful a message as Indira Gandhi’s Garibi Hatao slogan in the early-1970s.
To avoid losing the long-term political battle, as Mrs Gandhi did in the late-1970s, Modi will now have to win the economic and social argument.
First, he will have to quickly—and the timeframe for this is measured in days not weeks—sort out the cash shortage in the unorganised sector where many of the poor work.
High denomination notes valued at around Rs 8 lakh crore out of a total corpus of old Rs 500 and Rs. 1,000 notes valued at Rs 15 lakh crore have so far been deposited into the banking system.
However, only around Rs 4 lakh crore of new notes have been re-circulated (mostly in unwieldy Rs 2,000 denomination).
The resultant cash shortage is causing distress among daily wage labourers, small cash-and-carry retailers and unbanked tribals.
Most are stoic. Independent opinion polls show 80 per cent-plus support for Modi’s move against black money. The support cuts across age and income demographics.
But patience can wear thin. Hence the urgency of printing enough new notes (especially of Rs 500 denomination) to replenish liquidity in the unorganised sector.
The Opposition has responded with barely contained fury. Its “bandh” on November 28 disrupted life in cities like Kolkata where Mamata Banerjee’s TMC holds sway. It left Mumbai, India’s financial capital, unmoved.
The economic benefits of demonetisation fall into two categories. First, the value of unclaimed old notes is expected to be nearly Rs 4 lakh crore out of the Rs 15 lakh crore worth of notes rendered illegal tender.
This will allow the government to receive a special dividend from the Reserve Bank of India (RBI). The money can be used to recapitalise banks as well as build infrastructure and enhance public investment in education and health.
The second economic benefit is the increase in the tax base as a large part of black money turns white. If Finance Minister Arun Jaitley delivers a bold Union Budget on February 1, 2017, the economy could rebound from the April-June 2017 quarter onwards.
Armed with a treasury flush with cash, Jaitley can afford deep cuts in personal income tax. This will be politically popular with the middle-class just as the campaign against black money has been popular with the poor.
A cut in personal income tax along with the implementation of GST to replace indirect taxes (service, VAT, excise and customs) could drive a consumption-led boom by mid-2017.
Economic growth, which in the November 2016-March 2017 period may fall from a pre-demonetisation estimate of 7.70 per cent to around 6.80 per cent, could well spurt to over 8 per cent in 2017-18.
This is critical for Modi. If the economy recovers sharply, black transactions reduce, private investment recovers, and consumption through greater digitisation picks up, Modi will be in pole position to win three battles: economic, moral and political.
With several state assembly polls looming in 2017-18, and the Lok Sabha election due in 2019, it is a battle the Opposition knows it cannot afford to lose. Hence the coalition of convenience that makes a Mamata Banerjee offer an electoral alliance to a sworn enemy like the CPM.
Meanwhile, Parliament remains paralysed. The prime minister will not speak in either House till the debate on demonetisation begins. The Opposition will not begin the debate till he speaks.
The deadlock will eventually be broken by backroom talks in the well-practised Indian art of jugaad.
Cashless and witless, the Opposition will pray that Modi trips up on executing demonetisation in the next crucial 30 days of December.
If he doesn’t, they should get used to seven-and-a-half more years of PM Modi. – Daily-O, 28 November 2016