What Explains the Popular Support for Demonetisation?

Despite the hardships, why do many people continue to back what most economists and analysts have termed a bad policy?

A bank employee fills a form after counting stacks of old 1000 Indian rupee banknotes inside a bank in Jammu, November 25, 2016. REUTERS/Mukesh Gupta/Files

A bank employee fills a form after counting stacks of old 1000 rupee banknotes. Credit: Reuters/Mukesh Gupta/Files

We have been confronted with an odd situation in the aftermath of demonetisation. Most economists and analysts are of the view that demonetisation is a bad policy that was badly implemented. Yet, most opinion polls suggest that the move is popular even among the people who have suffered because of it. Many have been puzzled by this divergence between the facts on demonetisation and the public support for it.

Recently, students at the Indian Institute of Technology Delhi surveyed about 700 small businesses in the city to primarily document the impact of demonetisation on sales and earnings. At the end, they asked: “Overall, do you feel that demonetisation was a good idea or a bad idea?” Based on an informal student feedback, there appear to be six categories of respondents to that question.

First, those who are unclear in their responses. It seems that in some cases, people find it better to not reveal what they actually feel. These are the ones who in their responses sometimes add, “you’ll know when we vote next”.

Second, are the uncritical supporters whose backing of the move is primarily political and is based on faith in the leader and/or the party. For them, since Prime Minister Narendra Modi has said demonetisation is good for the country, there is no further need to question the move.

Third, many respondents who express their support for demonetisation, despite being badly hit by it, do so because they feel it has hurt the rich, it acts as an equaliser and is forcing the rich – even if only temporarily – to finally treat them as fellow human beings (for instance, talking to them politely when in need for change for the Rs 2000 notes).

Fourth, are the people who feel it is best to say that the note ban is a good thing because it is the easiest response to give. When “everyone” is saying it’s good, why be contrarian, get into an argument or maybe even get beaten up? When probed about why they believe demonetisation to be a good thing in the long run (for instance, because tax compliance may improve in the future) even though they can see that it has been bad in the short run, such respondents are unable to give a credible answer.

Fifth, are those for who believe that criticising demonetisation will amount to saying that they support corrupt practices or are admitting to having ‘black money’ stashed away. I have myself fallen into this trap. Upon hearing harsh criticism from a chartered financial analyst – a man who used to argue with people if they criticised Modi until before demonetisation – I could not help but wonder if he had lost money because of the move.

Sixth, are the people who have applied their mind, followed the issue very keenly and have reached a conclusion about why they think it is good. But, within this group emerges a worrying trend; upon being probed, one learns that their arguments are based on misinformation. For instance, they believe that demonetisation will end ‘black money’, which is premised on the belief that high denomination notes are the main or only form of holding ‘black money’. In some cases, when presented with data and arguments that challenge their belief (for instance, only 6% of the total haul from income tax raids is cash and the rest is held in other forms, such as gold), they are receptive and do not resist the facts.

It is one thing for ordinary citizens going about their daily lives, to believe that ‘black money’ is only held in cash in high denomination notes and is stacked away in cupboards, mattresses and pillows, but for a government to endorse such a line of reasoning is mind-boggling. In his November 8 speech, the Modi said, “Which honest citizen would not be pained by reports of crores worth of currency notes stashed under the beds of government officers? Or by reports of cash found in gunny bags?”

The government is proactively spreading misinformation and its narrative has been flawed right from the get-go. People have been led to believe that the one-off removal of Rs 500 and Rs 1000 notes would fix the black economy, with Modi saying in his demonetisation announcement: “To break the grip of corruption and black money, we have decided that the 500 and 1,000 rupee currency notes presently in use will no longer be legal tender from midnight”.

Modi has given strength to the false notion that cash deposited in bank accounts post-demonetisation is tainted. In Japan, he said, “Now, even those sons who left their mothers at old-age homes are depositing two-and-a-half lakh rupees in their mother’s accounts.” Bogus claims like, “The magnitude of cash in circulation is directly linked to the level of corruption. Inflation becomes worse through the deployment of cash earned in corrupt ways” have also been made by the prime minister. Neither he nor his advisors appear to have anticipated the negative shock to the economy from the sudden loss of liquidity. This staggering lack of foresight may cost the economy for months or longer.

The perception that to oppose demonetisation amounts to supporting corruption is almost directly attributable to the speeches made by the prime minister. When some opposition parties raised valid concerns, he is reported to have said, “I see that people in public life are giving speeches in support of corruption and black money”.

When the government was cornered on its flawed narrative, it cleverly changed the narrative to ‘retrofit’ benefits. There was an expectation that a large share of demonetised notes would not return to the banking system. When nearly all of it was returned, we were told that this would enable the income tax department to conduct enquiries. The truth is that whether it is tax raids or cashless society, demonetisation was not necessary for any of these retrofitted benefits to materialise.

In the end, the divergence between the ‘facts’ and people’s beliefs can be attributed to the government’s successful propaganda machinery and to the failure of a weak opposition. The fact that the government felt compelled to change the narrative suggests that only facts are effective against propaganda.

Reetika Khera teaches at IIT Delhi.

  • Amit Poorva

    Or, may be it is as simple as 1) I know that Modi has all the correct intentions, 2) I don’t trust Congress (the corrupt ones), 3) I dont trust Left parties either, as they only tacitly supported Congress. So, I support Modi, may this be supporting demonetization.

    • Mesquite Ice

      When India Against Corruption and the Supreme Court headed SIT on black money recommended demontisation of high value notes, no one said a word. That was the time for intellectuals and economists to voice out their opinion. Now when they turn back and blame it on the PM i find it wrong. It appears that people gang up to find fault with whatever he does. When i tried to buy a house i was asked to pay cash portion. The system has become so rampant that the intellectuals and the insightful people like the author and the economists did not come to help me to change the narrative. Today, i feel vindicated. Not that everyone else is dishonest, but even a timid, shy, helpless person like me was right in not dealing in black money transactions to buy houses. The PM has by his act has proved that truth will prevail and black money dealings also come with their own risk.

  • Arnab Basak

    Insightful article, Ms Khera – thanks! I think there’s yet another reason why thinking people who have applied their mind and are aware of the facts still support demonetization despite them – and that is arrogance. This is the arrogance of those who extensively use cards or e-wallets for their payments, and demonetization served to enhance their feeling of superiority because none other than the Prime Minister himself was now exhorting the nation to switch to cashless which in effect was a vindication of their choice, and an implicit acknowledgement of their prescient wisdom. This class of people has little or no empathy towards the vast majority who struggle to survive in the informal sector, and consider demonetization be to a “well deserved lesson” for them.
    Your point on “faith in the leader and/or party” is also pertinent, and at the same time very worrying. It effectively gives Modi a carte blanche to take stupid policy decisions like these, garnish them with half truths and untruths and spin them any way he likes with the confidence that criticism if any can be blown away with the cannon of “anti nationalism”. It is time to ring the alarm bells of democracy, if our elected leaders are not questioned or held to account.

    • rantman

      As a representative of the class of people who extensively use cards or e-wallets for their payments, I must object. Our sense of superiority and arrogance stretches to the point where we don’t really care that the Prime Minister is exhorting us to do any thing. Yes, we are nominally affected one way or another by demonetization – it is not an existential issue for us. You may deem this as lack of empathy to the vast majority if you wish.

      But I should remind you – we’re also the ones least likely to vote. So it was not us who voted this PM in to power with overwhelming majority and a carte blanche to take stupid policy decisions. It was that vast majority, that is now suffering the consequences of those decisions, that brought about this predicament upon themselves by exercising their democratic rights. Fortunately, there is no `right to empathy’ in our Constitution. Let them enjoy their ‘acche din’! Don’t point the finger at us!

    • Mesquite Ice

      What is arrogance. I use card because i cannot afford to spend my money 30 days in advance. The credit Card is a convenience and life support. For you information, I used to use credit cards before demonetisation, but now i use cash also where credit cards dont work or where you have to pay only with debit cards. why? for convenience not arrogance.

      Also please stop being the self appointed spokesmen for the poor to hide your desperation. Speak about yourself. That is the only authentic version that can help us understand each other. I can talk of people suffering daily pavements, so why do you even stay in a house, is that arrogance? Please help them if you can, please donate to akshaya patra if you can. But that is not an arrogant act to say i am feeding children. You are blessed to be able to feed a child.

      The Demonetisation may/may not affect the poor in the short/long term. But let them speak for themselves and our democrazy will definitely take their voices and people will have to account for their deeds. But dont think you are all pervading and entitled to speak on behalf of others. Please allow every person to think for himself. Dont thrust your views on others

  • Mesquite Ice

    One another point which seems to be missed is that, when India Against Corruption and the Supreme Court headed SIT on black money recommended demontisation of high value notes, no one said a word. That was the time for intellectuals and economists to voice out their opinion. The Govt hears the voice of the people and does what its majority people ask it to do. That is how a democrazy works. The author and other insightful people like Mamata Banerjee supported Anna Hazare when he made this claim. Now when they turn back and blame it on the PM i find it hypocritical. It appears that people gang up to find fault with whatever he does. What also hurts me is the elitists assuming themselves to be spokespersons for the poor because these people invariably tend to feed themselves in the name of the poor.

    For me GDP nos make no sense. When i tried to buy a house i was asked to pay cash portion which i did not have and others had. The system has become so rampant that the intellectuals and the insightful people like the author and the economists did not come to help me to change the narrative and had given up their voice to stand up against what was a assault on the people who did not have black cash. Today, i feel vindicated. Not that everyone else is dishonest, but even a timid, shy, helpless person like me was right in not dealing in black money transactions to buy houses. The PM has by his act has proved that truth will prevail and black money dealings also come with their own risk.

    I ask all economists, intellectuals and insightful people who criticize the move to tell me why they did not oppose this idea with the same vigour when India against corruption and SIT recommended it.

  • Mondelez Clinic

    I think it made people think, when in past we used to blindly follow rules and policies.Whether their thinking is right or wrong is an issue for another day but it did force us to start thinking about measures to decrease corruption and a better future.I am just happy that a small change has started and hope for the best.