2017: When Demonetisation politics meets Modinomics

Gaurav ChoudhuryMoneycontrolIn 1992, shaky conditions had prompted Bill Clinton’s campaign strategist James Carville to pen the now-famous phrase: “It’s the economy, stupid”. It soon became the flagship slogan for Clinton’ US presidential poll campaign.

Over the years, the phrase has become a metaphor to describe unconventional, and sometimes not-so-popular, approach to deal with extraordinary times.

Nearly a quarter century later, Prime Minister Narendra Modi has pinned his argument for “demonetisation” on a similar strand of thought: “It’s the black money, stupid”.

Very rarely in recent history has a single policy decision in the financial world had such an immediate impact as India’s move to “demonetize” old Rs 500 and Rs 1000 notes.

The process has been painful. Unending queues at ATMs, unpaid wages, cancelled weddings, deaths: the world’s largest currency culling exercise has been anything but neat, tidy and systematic.

Assembly polls to a string of states, including the politically important Uttar Pradesh in February-March, will mark demonetisation’s first test on the electoral battlefield.

The Budget for 2017-18, to be presented weeks before the state polls, will present the government an opportunity to reward honest taxpayers for enduring the pain of demonetisation.

On the cards: a restructuring of tax slabs and increasing the income tax exemption limit—a move that would leave more money in the hands of people.

It would also be reasonable to expect a big jump in welfare spending. The launch of a new rural scheme on the lines of the previous UPA government’s NREGA cannot be ruled out, given that the BJP will only raise the pitch, signalling its intent to walk the talk on rooting out corruption and black money.

But here’s the rub. If 2016 was about currency stripping, 2017 could well be the year of even more plucky changes.

To begin with, the government has wound down a 92-year-old practice to present a separate railway Budget, freeing the state-owned transportation behemoth from having to deal with stressed finances and political populism.

India’s plans to stitch together a common national market through a country-wide goods and services tax (GST) will likely come to fruition in 2017, although April 1, 2017 deadline looks missed for now.

By next year, India will have decided on a roadmap to move to a new fiscal year, replacing the April-March cycle, a 150-year-old practice, with possibly a January-December cycle.

The last of the five year plans (2012-17) will also end, winding down a six-decade-old Soviet-era relic.

The success or otherwise of such far-reaching moves will remain a matter of debate, but one thing appears certain: 2017 promises to be year of spectacular changes.