Why the poor backed DeMo
Exactly five years ago, I stood in a serpentine queue outside my local bank branch to exchange Rs 4,000 worth of demonetised Rs 500 notes. The note-ban was a great leveller. Rich and poor waited behind each other, alternatively grumbling and cracking jokes. Ahead of me, a dapper young man was announcing loudly, to whoever was willing to listen, that PM Modi was finished politically. He claimed that he was a Modi bhakt and had campaigned for the BJP in 2014. But this one move had convinced him that he had made a mistake. On that day, on the kerb outside the bank, most people agreed with him.
The ‘economy’ that we talk about deals with only 70% of Indians. The poorest 30 per cent at the bottom operate in a sphere that is outside our imagination.
Logically, Modi’s BJP should have taken a body-blow in the Assembly elections that followed demonetisation. If 86 per cent of the value of money in circulation had been junked overnight, every Indian citizen was likely to have been scarred by it. Most people were taken by surprise when the BJP not only won UP, but also got its highest-ever vote share in the Assembly polls in the state. Explanations ranged from communal polarisation of the electorate, infighting within the opposition, and conspiracy theories that blamed EVMs.
Very few saw demonetisation as a key reason for the BJP’s victory; that the move might have convinced the state’s poorest people that PM Modi’s heart beats for them. Those who grudgingly admitted that they might have been wrong about the political fallout of the note-ban argued that this was a case of schadenfreude; the poor had been hit by demonetisation, but they were happy that the rich had lost even more.
But what if a large proportion of India’s poor faced no ill-effect whatsoever of demonetisation? This seems absurd, given how deeply it affected India’s economy. But it is absurd only if we assume that what we call the ‘economy’ encompasses everyone living in India. In reality, the ‘economy’ that we talk about – whether visible or invisible, organised or unorganised, measurable or not – deals with only 70 per cent of Indians. The poorest 30 per cent at the bottom operate in a sphere that is outside our imagination.
How many people in India were likely to have regularly come across Rs 500 or Rs 1,000 currency notes before demonetisation removed them from circulation? Everyone who was getting a monthly salary or a regular weekly wage was likely to have ‘circulated’ – received, spent or deposited – these high-denomination notes. Everyone who employed others would also have used these notes. Finally, there were ‘own-account’ traders and vendors, with high turnover but low income, who would have come across the high-value notes on a regular basis. Think of roadside vegetable vendors, for instance, who buy vegetables worth lakhs of rupees every month, but they are still very poor.
The Periodic Labour Force Survey (PLFS) of 2017-18 contains some clues to make a rough estimate about the percentage of Indians who would have been directly affected by demonetisation. Those who got regular salaries and wages accounted for about 23 per cent of the employed. Another 2 per cent ran businesses where they employed others. Roughly 10 per cent would have been in non-agricultural employment that required them to buy expensive inputs, even though they earned very little. That adds up to 35 per cent. We are now left with farmers (31 per cent), casual labourers (25 per cent) and ‘own-account’ workers with low input costs and low income (9 per cent).
The PLFS tells us that casual labourers who got paid daily earned about Rs 268 in rural areas and Rs 356 in urban areas in July-September 2017, almost one year after demonetisation. In UP, the wages were even lower – Rs 224 in villages and Rs 259 in towns and cities. These casual labourers would have rarely come across Rs 500 or Rs 1,000 notes. And that’s a quarter of the electorate.
About 20 per cent of the electorate were ‘own-account’, self-employed people, in non-agricultural occupations. Out of these, about half earned less than Rs 8,000 per month (Rs 267 per day) in 2017-18, and one-fifth earned less than Rs 5,000 per month (Rs 167 per day). If one assumes that a little over half of these people with low earnings did not need to buy high-value inputs, we can say that another 5 per cent of the electorate had virtually no interaction with high-denomination notes.
We now come to farmers who accounted for about 31 per cent of the employed work force in 2017-18. NABARD’s Financial Inclusion Survey (NAFIS), conducted around the same time as PLFS 2017-18, tells us that 6 per cent of those who are categorised as farming households, had less than 0.01 hectares of land. These people would have had very low input costs and are unlikely to have needed Rs 500 or Rs 1,000 notes. Another 31 per cent had less than 0.4 hectares (1.0 acre). We can safely assume that at least one-third of them had very low input costs, and rarely saw high-value notes. That means that at least 16 per cent of farmers, accounting for 5 per cent of all workers, had no need for high-denomination currency notes.
Let us add the three groups that we have identified, who would have largely been unaffected by demonetisation: casual labourers who accounted for 25 per cent, own-account workers with low turnover and low income, who constituted 5 per cent of the employed, and very small and marginal farmers who made up another 5 per cent of the employed work force. That’s about 35 per cent of the electorate who would have faced almost no ill-effects of demonetisation.
This was fertile ground for the BJP, of people who had genuine reason to believe that the Modi government had acted against the rich, on their behalf, much like Indira Gandhi’s ban on privy purses and her nationalisation drive had done five decades ago. The BJP sensed this on the ground. That is why Uma Bharti compared Modi with Marx and Lenin, at election rallies in 2017. It was an unexpected side-effect of a disastrous economic move. It also revealed how poor India really is.
The author is a senior economic analyst
