UP polls will test Modi’s gamble

It has been a month since Prime Minister Narendra Modi announced demonetisation of high-value currency notes. Parliamentary proceedings have come to screeching halt over the issue. Hundreds of people are still queuing before ATMs and banks with a vast majority failing to withdraw their own cash. The banking system is in a state of near paralysis. Most seasoned economists are saying that demonetisation (with the objective of unearthing black money) has been a complete misstep. They also claim that the Prime Minister has made a massive blunder by taking this unprecedented step without adequate preparations.

On December 7, at the monetary policy committee meeting of the RBI Governor Dr Urjit Panel failed to give any indication when normalcy will return. He only gave some general observations that the situation was improving. Former Finance Minister P. Chidambaram came up with the startling observation that the situation would not return to normalcy even after six months, and the objective of unearthing of black money will be defeated as fresh channels will be created for generating black funds from new notes. What was the need for giving such acute pains for a long term then? What is the objective of the Prime Minister Narendra Modi?

Narendra Modi is not a fool. He might have gambled and taken risks, but there is a method to his madness. He has some calculations and is working in that direction by focusing all the attention on a cashless society and digitalisation instead of unearthing black money. His focus is now the Assembly elections in the five states and especially Uttar Pradesh. Narendra Modi wants to get political sanction from the people of Uttar Pradesh through BJP in the next state poll in early 2017. He will test the NDA government’s popularity by making the demonetisation and the Budget proposals to be presented on February 1 as his campaign plank. 

There are two aspects of the Prime Minister’s planning. Modi is preparing a plan to make use of the Jan Dhan deposits available with the banks by filling the coffers of these small depositors with a minimum amount of Rs. 30,000 to Rs. 40,000 as one-time deposits from the Government. This will be put as one-time deposits for nearly 250 million bank depositors and this amount, Prime Minister will claim, has been mobilised from the additional funds which have been generated as a result of his demonetisation move. This decision of the Government might be a part of the so-called pro-poor budget proposals to be unfolded by the Modi government on February 1.

Simultaneously, the PM’s people have a feeling that as time passes and the present strains are minimised, the BJP’s campaign will be stepped up to project Modi as the Messiah against the black money and the wealthy. Moreover, the impression will be given that in Uttar Pradesh, all other parties including Samajwadi Party, BSP and the Congress depend on black funds for their electoral campaigns and they are most bitter as a result of demonetisation. The BJP under Narendra Modi is the only party which has effectively fought the black money evil and organised substantial bank deposits for the poor from the ill-gotten wealth of the wealthy. If the JDY borrowers get the bulk amount from the Government before UP and Punjab polls, that could have some impact in influencing public sentiment in favour of Narendra Modi.

That way Modi is looking at the coming Assembly elections as a referendum on his programme. This is a make or break situation for him. Modi is agog with the idea that he is on the verge of building a cashless, digital, highly industrialised India. These potential achievements, he believes, will establish his legacy. This is his political planning right now, but can it click? The economics of this decision on demonetisation goes against ground realities. Investments cannot pick up with this massive liquidity crunch. The informal sector is starved of funds resulting in significant loss of employment. The rural demand is not picking up, and the industry cannot expect demand push in the current fiscal. 

Yes, Narendra Modi is confident because of the precarious condition of the Congress and disunity among the anti-BJP parties. The Congress is yet to focus its attention on UP polls which are crucial. Sonia Gandhi is ill, and Rahul Gandhi has not yet taken over officially. The Congress has to launch a massive campaign for Uttar Pradesh elections, and there is a need for an understanding with the SP in Uttar Pradesh. The UP poll is the litmus test for both Modi and the Opposition. If the BJP wins in Uttar Pradesh polls, there is no way Narendra Modi can be prevented from winning Lok Sabha elections in 2019.

Perhaps it is high time that ailing Sonia Gandhi calls a meeting of the senior leaders of the former Congress Parties like Trinamool Congress, NCP and the YSR Congress and few others belonging to the original Congress Party and work out active collaboration. The BJP can be defeated only by joint efforts of the Opposition based on a sound programme. The process has to start from Uttar Pradesh. Ways have to be found out to prevent BJP from winning the largest populous state of the country which is the gateway to power at the Centre. Narendra Modi has thrown up a challenge of demonetisation which is his agenda, and he is determined to make it a success for ensuring his political future.