Last December at a lunch in Delhi, an internationally renowned academic asked me, “Are you supporting the fascist demonetisation?” I was surprised by the tone but I said yes. What made the demonetisation fascist? Another good friend denounced it as illegal and authoritarian. That was nonsense if he had spent one minute finding out. But then in India today, rational debate has become difficult. Anything Prime Minister Narendra Modi does is bad, fascist, dictatorial. Thrilled at the upheaval demonetisation seemed to be causing, various people became expert economists and made forecasts of serious damage to the economy. Rahul Gandhi said Modi was firebombing the poor.
Even Dr Manmohan Singh, normally cautious and well-informed, forecast a 2 percentage point drop in GDP without offering any evidence. Perhaps he spoke more as a politician than an economist.
Now we know. The cost of demonetisation was (as I predicted in this column) just about one half of one per cent of GDP growth. This number is not final, of course, and will be revised up or down.
But it will not be modified as sharply as may fulfil the wishes of the Opposition. A sharp shock may have a negative impact immediately, but the economy reverts to the normal in time. That is a basic truth in economics. Economics may not be a hard science, but it is not something which has no logic. TV news panels and many opposition leaders who have no interest in analysing the real situation played on hyperbole. It was more a measure of their dislike of Modi as well as the low level of economic literacy than hard economic forecast.
The entire episode proved that we cannot believe what is said in public discourse from a political platform. Exaggeration is the norm. It is not so much fake news as fantasy news. The Opposition has lost so much that they indulge in wishful thinking. The pity is that by wrecking the Winter Session of Parliament they lost a golden opportunity to discuss the demonetisation experiment seriously.
It should have been clear that while the withdrawal of old currency notes was a success (most got returned), the introduction of new currency was badly managed. But the gap in cash affected small -ticket items, not investment or even farmers’ sowing activities. Daily casual workers suffered as and when cash dried up, but again they are marginal to the economy. It is in the nature of their work that there are days when they don’t find employment, even if cash is not short.
It is because politicians and journalists have no knowledge of the daily lives of the mass of people that they exaggerated what they saw. The poor queue up, find things are not available, suffer losses all the time.
The novelty was that the better off had to queue up. Since Manmohan Singh’s neo-liberal reforms, queues have vanished for the middle classes. Suddenly they were thrown together with the poor.
Hence the anguish.
Narendra Modi showed courage in launching the drastic move but even more in sticking to his choice despite a lot of complaints. Now his critics will shift gears and say that even so the black money will be back. But the hoarders now know that any day the government can devalorise their hoards of cash. Lightning can strike twice.