like lawyers, economists also like to go by precedents. As such, it is not surprising that India's demonetisation exercise didn't find favour with the more celebrate practitioners of the discipline. No functioning economy-and a growing one at that-had tried it before and it seemed too audacious a move. In any case, demonetisation hadn't featured on the policy prescriptions of pundits. More to the point, economists haven't really figured out how the imponderables of politics affect their policy prescriptions. In the face of such daunting challenges, as Jagdish Bhagwati once wrote, "Any elementary mistake in economics can be turned into a profound truth by ingenuously making the right assumptions to deduce what you want." He added that "India suffered the tyranny of anticipated consequences from the wrong premises."
For social scientists studying India, there is also one overriding consideration: The reality of the Narendra Modi Government. Try hard as they might-and they haven't really tried very hard-academia and media have found it impossible to digest the fact that sustained opposition to the Modi Government hasn't either brought about a regime change or led to dysfunctional governance-of the type witnessed in the final two years of the UPA Government. last November's demonetisation was thought to be Modi's big mistake-it was compared to Napoleon's Russian campaign-and it was felt that it was only a matter of time before public anger toppled the Government.
It didn't happen. On the contrary, the results in Uttar Pradesh showed that the Prime Minister's popularity continued to touch dizzying heights.
The past fortnight has, however, brought cheer to the unrelenting opponents of the Government.
First, there was the landmark judgment on the right to privacy by the Supreme Court. The judgment set a broad framework and drew a lakshman Rekha around the intrusive powers of the state. It set right the judiciary's own mistakes committed during the Emergency. The judgment may also have created the judicial precedents for the scrapping of the archaic provisions on gay sex. What it did not do was to set aside the UIDAI programme around the Aadhaar card that has plugged leakages in welfare schemes and created deterrents against tax non-compliance. Yet, that is how the judgment was sought to be projected.
Second, there was the outcry over the violence surrounding the court judgment against the chief of the Dera Sacha Sauda, Ram Rahim. This led to nearly 30 deaths in an around Panchkula plus huge damage to property by angry followers in both Haryana and Punjab. Curiously, while the violence in Haryana was highlighted and led to shrill demands for the sacking of Chief Minister Ml Khattar, the disturbances in Punjab were left unaddressed. There was considerable damage to Railway property in Malout and Bathinda, telephone exchanges were vandalised in Barnala and Talwandi Sabo, electricity generation units were attacked in Bathinda and Sangrur and countless petrol pumps were attacked and damaged in the Malwa region. The violence, it would seem was widespread in the two States but its epicentre was Panchkula. However, the political fallout of the Dera violence was focussed on attacking the BJP and, by implication, the Prime Minister. The media even went to the extent of distorting judicial observations to show that the basis of Modi's politics is the instigation of violence.
Finally, there was the entire kerfuffle over the fall in the growth rate to 5.7 per cent and the Reserve Bank report that nearly 99 per cent of the demonetised bank notes had found their way into the banking system. These were taken as proof that demonetisation had failed and that there was no recovery of black money. The conclusions were bewildering. There was a facile belief that all monies deposited into the banking system had automatically become legitimate and that the tax authorities were content to ask no questions. This projection was in direct conflict with an earlier alarm that demonetisation had paved the way for tax terrorism. Obviously both can't be true but consistency is the inevitable casualty of a news projection that was aimed at solely at showing that the media and the pundits can never be wrong.
It is not that demonetisation has been painless and that some black money hasn't managed to escape the net. Where the critics have wilfully erred is in not seeing the larger social consequences of demonetisation: The big strides taken in rolling back the black money epidemic and making India a relatively more tax-compliant nation. The suggestion that this would have happened even without demonetisation is specious. Given the sheer brazenness with which the grey economy operated, it needed a big hammer blow for some balance to be restored.
No doubt this has caused some dislocation to the economy. Along with the production slowdown that preceded GST, the hiccups in the unorganised and unregulated sectors were responsible for the slowdown in the economy. Yet, what we are seeing is the creation of a sturdy foundation for a modern economy. At the same time we are also witnessing the spirited resistance of all those, whose cosy and, more often than not, corrupt, corners have been unsettled by a reformer who is not afraid of challenges.
Modi could have taken a less troubled route and gone in for the plodding approach to politics. Instead, he chose the path of fundamental reforms that will change the way India operates. Modi has disturbed a stodgy, do-nothing consensus. This is why he is being opposed by a coalition of the rotten.