You think demonetization didn’t play any role in BJP’s victory? It actually did but in a twisted way

Going by logic, demonetization of November 8 last year by the government that resulted in taking off 86% currency from circulation would result in reduced economic transactions. And you won’t need a degree in economics from Harvard University or too much of hard work to understand that lesser economic transaction translates into a lower GDP. The critics had argued that this move by Modi-led government would result in a major crisis among the unorganized sector and domestic output, as both are cash-driven. The ruling party had explained that this measure was necessary to cleanse the system from black money and move into a digital economy (that came later).

The media stands a witness to the monstrous impact of demonetization. While people losing their life standing in the queue could be dismissed as coincidences, numerous FMCG companies including Nestle and also some consumer durable companies reporting steep decline in sales during end of last year are chronicled proof of the massacre. Heavily hit were daily wage workers, whose wages were delayed and the less fortunate ones lost their jobs.

Credit rating agencies forecasted 1%-2% fall in domestic output for the third quarter (Q3), which ranges from October-December. But then the last day of February turned out to be too much joyous for Modi when the Central Statistics Office (CSO) announced 7% growth in GDP in Q3. Even when International Monetary Fund had predicted 6.6% of GDP a few days back, this number surprised everyone.

If this surprise wasn’t enough, yesterday’s stellar performance of the BJP in the UP state election was another shock. When political analysts thought BJP may lose vote share in the Indian heartland because of too many migrant labourers whose job was at stake, all credits to demonetization, the party pulled out a mega show.

So is it true that demonetisation has actually paved way to victory for BJP both in GDP and elections? Well, a one word answer to these would be NO! But let’s start with analysis.

What happened to the GDP count?
Let’s not make our self ‘anti-national’ by saying the numbers of GDP by CSO were false. Rather let’s put some logic.
Firstly this GDP indicates that it’s higher by 7% in FY17, when pitted against Q3 of FY16. The government has taken into account the earlier higher Q3 of FY16 as the qGDP has been revised downward by 0.3 percentage points. In no way, this GDP is the comparison between this quarter and the last.

Secondly we need to analyse the profits of Rabi crop and Kharif crop. Crops sown in October- November would be harvested in March and April and this is Rabi crop. Whereas, Kharif crop is the one grown in June-July and harvested in September. The crop of Q3 FY17 was the one planted in June last year. A heavy monsoon last year has yielded an amazing harvest, which resulted in a major agro output and thereby increasing the GDP. To know the actual effect of demonetization, we would need to wait till rabi crop is harvested in mid this year.

Also the methodology to calculate GDP trends is quite unique as the past numbers are counted and an estimate is done. At a time, when the RBI is still trying to find how many notes are being printed and fed into circulation, it’s impossible to figure out ACTUAL numbers. The organized sectors didn’t feel much impact of GDP because those are mostly digitized. Thus it is well understood that the informal sectors would never be able to gauge the losses it experienced because of demonetization.

What happened to the election results?
It’s not essential to find out how much black money was cleansed from the system. As an unwritten norm, rural voters outnumbered urban ones by leaps and bounds. And this is where BJP played well. Instead of driving the point home on black money, BJP has made the masses understand that rich people have suffered a lot. The labourer waiting in the bank line to return old notes was made to believe by various instruments of democracy that the rich people have been stripped off their wealth. I remember, when returning home at a Noida locality where plenty of flats are being made, the driver of the cab smirked and said, the empty flats in this region won’t be sold for next 3 years because rich people have no money left. Modi has amazingly played the hero who has stopped black marketers, filthy rich and unaccounted money hoarders in one go. And to appreciate this stance, audience clap and voters do the needful.

(Image: IANS, India Times)