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Demonetisation has India on the edge

Ars 2000 note 759By ASHOK SWAIN

Modi’s so-called surgical strike against black money has turned out to be a carpet bombing on the lower middle class and poor families in India.

On November 8, 2016, at 8pm, in the name of curbing the black money menace in the country, Prime Minister Narendra Modi declared that from midnight currency notes of Rs 1,000 and Rs 500 denomination will not be legal tender.
While announcing this surprise decision, he forewarned of some hardships but called upon the people of India to ignore the inconvenience in the name of the larger national good - “in the country's history, there comes a moment when people will want to participate in nation-building and reconstruction".
However, this so-called bold move has not only caused minor inconvenience, but has turned out to be nightmare for millions of Indians. More than 70 people have died already in the aftermath of Modi’s announcement. Several of these people reportedly died standing in the never-ending queues in front of banks, while some others died because hospitals and drugstores refused to accept their old notes.
The abrupt demonetisation has caused a huge cash crunch in the country. The government has completely failed to adequately prepare for the impact. It has not printed new notes nor fixed ATMs in advance. Modi’s so-called surgical strike against black money has turned out to be a carpet bombing on the lower middle class and poor families in India.
Demonetisation has virtually ruined the country’s informal economy and has thrown small farmers and agricultural workers into a survival crisis. Rural and semi-urban areas with poor access to banking have been particularly hit the hardest.
Mocking at the continuing hardship of the poorer section of society standing in long queues to exchange their hard earned money, the rich and powerful have devised various ways to legalise their black money by converting to shares, gold and real estate.
Since Modi’s declaration of demonetisation, most of India is struggling to meet day-to-day needs. Anger has intensified as banks regularly fail to meet demands for cash. A large part of India's rural economy runs on cash transactions and very few people have bank accounts. Even in peri-urban areas, ATMs are not operating.
Due to lack of cash, supply chains at small as well big companies are fast breaking down. Industrial production has gone down, and consumption has also been badly affected.
In the year to March 2017, demonetisation is estimated to bring down India's gross domestic product (GDP) growth from last year's 7.6 per cent by as much as 4.1 percentage points. Due to Modi’s shock therapy to the country’s economy, India is on the verge of a serious social-political crisis.
On November 17, British newspaper the Guardian in its editorial warned that the scarcity of cash and lack of adequate preparation to meet such a huge challenge might lead to revolt in the country. While supporters of Modi mounted a vicious attack on the newspaper branding it as a "foreign fantasy", the Supreme Court the very next day also warned the government that there could be riots in the country.
The ongoing chaos over the currency crisis has already caused law and order issues in some parts of the country. However, overall, the country has not witnessed yet a large-scale revolt against the government, which the Guardian and even the country’s Supreme Court have already predicted.
The Opposition accuses the government of unleashing economic anarchy in the country, but the law and order situation is yet under government control. India is yet to rebel against Modi, but apprehension of it is not unfounded.
Research points out that the type of political system sharply affects the nature of protest in a state. Democracies are supposed to have more orderly but less violent protest than authoritarian countries. The structure and ethos of democratic regimes are such that they are adjusted to respond to opposition in a conciliatory way, which reinforces the utility of peaceful protest over violent rebellion.
However, under Modi, Indian democracy has almost lost its liberal character and has turned into a "semi-authoritarian" form of government. Decision-making has become extremely centralised, curtailing the role of other relevant institutions of the state.
A semi-authoritarian framework for India under Modi combines rhetorical acceptance of liberal democracy, the existence of some formal democratic institutions, and respect for a limited sphere of civil and political liberties with essentially illiberal and authoritarian traits.
Under Modi, India maintains the appearance of a democracy but restricts any opposition and free competition that a democratic society entails under the garb of greater national interest. The decline of Indian democracy raises the increasing utility of violent form of protests in the country.
In spite of large-scale suffering due to demonetisation, still a sizeable section of the middle class irrationally tends to believe their pain will convert to a lot of gain for the country and its economy.
The envisioning of long-term benefit will soon prove to be futile as this demonetisation gamble of Modi, while on the one hand will not be able to address the black money problem of the country as almost all economists predict, on the other its adverse effect on the country’s economy will be devastating.
This creates a perfect scenario for what Ted Robert Gurrhas described as "progressive deprivation" in his classic Why Men Rebel.
Poverty does not create collective violence, but relative deprivation "perceived discrepancy between value expectations and value capabilities" of population does. In simple terms, relative deprivation occurs when there is a serious friction between a person’s actual situation and what s/he feels that s/he should have achieved.
The gratuitous demonetisation policy and its certain failure to achieve its desired objective will soon generate progressive deprivation in the country, with growing popular expectation and lowering of state capability.
The country under the Modi regime, with its declining democratic character, stands on the brink of a popular revolt due to the demonetisation chaos. Time is running out fast for Modi to pull him and the country out of this emerging upheaval.

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