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The so-called demonetisation is a watershed event for India. It signifies the arrival of a new kind of politics that will redefine the relationship between citizen and state. The scale of this event is so unprecedented that we are struggling to see where all the chips will fall.
It has to be acknowledged that, in many quarters, reactions seem to be driven less by the force of reasoning, but on prior assumptions, how much we trust this government to know what it is doing. But this much can be said. A major move was required on black money. But the government itself has taken a gamble, without any reasonably rigorous reasoning on the costs and effects. Much will now depend on how quickly the economy will re-monetise. Second, the measure has failed two reasonable administrative tests. There is a shocking degree of callousness about the hardships these measures impose. But equally importantly, as Suyash Rai of NIPFP, has argued in a wonderful analysis, the policy falls short on one test: Were there more reasonable, less risky, more predictable policy measures that would have yielded as much benefit as this one? The answer is: Yes.
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But it will take a moment’s reflection to recognise that demonetisation is not about the calculus of costs and benefits. In fact, that is why there is lack of clarity over objectives. Its distributional consequences are an afterthought. Nor is it about politics in an opportunistic sense.
It would be churlish not to recognise that it comes from the prime minister’s depth of conviction and sincerity. But that is exactly its danger. What it threatens to institutionalise is a new kind of politics. This is politics as a vast morality play whose three central elements are personification, puritanism and punitive imagination. A new state is emerging and it is not what you think it is.
Just as a matter of political analysis, the sheer audacity of this move is breathtaking. To dismiss it as a characteristic piece of propaganda or theatre would be to miss its significance. When was the last time there was a policy measure that required, in a manner of speaking, the total mobilisation of society on this scale, where literally every citizen is being enlisted (or conscripted, if you prefer) in a policy cause?
When was the last time literally every citizen is being inducted into a behaviour change, albeit temporarily? As the consequences of these policies unfold, the backlash against the government will grow. But for a very short window, at least, the very performance and sweep of the idea is being taken as proof of its sincerity. This ability to translate a policy measure into a national project is unprecedented.
But this is exactly the danger, since this move is premised on dark institutional undercurrents. The personification of policy works at different levels. To work as a national project, all individuality, all questions of distributive consequences, have to be effaced. Every citizen will appear, alternatively, as a patriot or a criminal: The histories of their individual life worlds, whether they have bank accounts, how much cash they use, how far they live from an ATM, all these questions pertinent to the distributive consequences of these actions will be immobilised. This personification has been present in the prime minister’s speeches, the construction of the figure standing in line as a 2G scamster. It is evident in the undifferentiated account of “hardship” and “sacrifice” where distributional consequences again don’t matter. But most of all, it is evident in the premise of this exercise: The perfidy of the few can justify imposing hardship on all. We are all criminals, who through the process of this dialysis, by the mere act of standing in lines, will come out patriots.
With personification comes a punitive imagination. The state is telling you that the honest have nothing to fear. But there is every sign of unleashing the worst aspects of the Indian state on even ordinary citizens. The culture of raids on small shopkeepers and business engaging at best in marginal perfidy of getting rid of undeclared stocks has been reopened. The threat to audit cash injections into Jan Dhan accounts is silly in the extreme. Even if a few poor are lending their accounts to launder a lakh or two for commissions, it will probably be a net redistributive gain.
Investigative energies are best concentrated elsewhere. But in any case, you get more than a sense that this whole chain of events will now be a pretext to bring back a Seventies-style domination of punitive tax imagination on citizens. As always, it is not directed at specific big targets, but indiscriminately in a perverse equality: The Jan Dhan account holder and Vijay Mallya on the same plane.
The state may want our patriotism.
But it still does not trust us. The state is still the font of virtue that stands above us. It is not an accident that we are now reintroducing indelible ink marks on those who try and withdraw even their own money more than once.Thebasic paternalism and suspicion the state has of citizens will not go away. That was the philosophical basis of the punitive imagination of the Indian state, now remobilised under the guise of cleansing.
There is also a moral puritanism in this: As if the world is entirely black and white.
It is manifested in this odd distinction between black and white money, forgetting the elementary fact that whether money is black or white depends on where it is at in the cycle of circulation. Hence they have perpetuated the illusion that we can extract the black, without hurting the chain of circulation of the white. It is not an accident that this measure will largely be a wealth tax on those not sophisticated enough to launder; those who have laundered will go unpunished.
Will this succeed politically? The answer will depend on the degree of economic and institutional regeneration. I suspect the measure of this that will matter to most people is not crony capitalism, but whether government officials at mid to lower levels stop asking for cash bribes. With a measure of this magnitude we will learn quite a few things about economic ingenuity and institutional adaptation. There will be some benefits. Economists can give a better account of demonetisation. But be very wary of the institutional imagination that underlies it. It will again unleash the state on you, in the name of protecting your own virtue. What starts as a morality play will end in more statism.