As the country reels under the impact of demonetisation, CNBC-TV18's Shereen Bhan in an exclusive interview spoke to the top financial analyst Ruchir Sharma who said that Prime Minister Narendra Modi's demonetisation move has surprised global observers.
"It will not be the clinching factor in the upcoming UP polls, instead caste will play a bigger role," he claimed.
Here are the excerpts from the interview.
Q. In terms of India the biggest factor to deal with this at this point in time is demonetisation. You have been fairly critical, you believe that this kind of therapy was not justified; you also believe that if you look at the cash to gross domestic product (GDP) ratio then it is not outrageously high at 12 per cent to GDP for India. In fact you believe it is comparable to other economies like China, Thailand etc, you have said that revenge cannot be a development strategy and India cannot leapfrog in that sense by using demonetisation as the route. Do you buy any of the economic arguments or the government is presenting that yes there will be short-term pain but in the long-term this structurally changes the India story?
A: No, I don't see the economic argument for this. I think that the debate is now shifted now whether there is any political benefit to this. I think that a lot of people in India have been surprised, at least outside observers, by how well India has coped with this, that this is a huge step to be done in a non-crisis environment. Usually, these kinds of measures are taken when a country is going through some major crisis, a financial crisis, some inflation crisis. However, this step has been taken outside of a crisis environment. I think that most people in private will tell you whether it is government or business people that they don't really see any enduring economy benefit of this. The best case that I have heard about this that this was a lot of pain for nothing which is that you have got a lot of pain but the enduring benefit will not really be there from economic stand point. Everyone now is debating when will this economy get back to some sort of normalcy because I have been meeting a lot of business people in the last couple of days I have been in India and the common number I have heard from everyone is down 30 per cent. Roughly, if you look at all the sort of evidence in terms of sales or other things or if it is advertising, retail etc the most common number I have heard is that things are down about 30 per cent from a year ago this month. So, December is really the pinch month for this. I think that most people agree that the benefits of this, people spoke about a fiscal windfall and other things, I think most people now come and conclude that none of that will be there. However, the debate now is shifted to politics which is that is there some political benefit to this.
Q: Do you believe that there will be political benefit?
A: I think it is early to say and I think that this is where we are really in unchartered territory because I had come to believe that in India over the last couple of decades the political paradigm had shifted that in this country now good economics was good politics. If you sort of deliver a high economic growth, low inflation you will get elected if you didn't you would get booted out like the previous government got booted out.
Q: You were talking about whether this will in fact reap dividends for the BJP politically or not and outside of economics you also spend a lot of time on the election yatra, you cover state elections as well. UP is coming up. Do you believe that this narrative is going to work for them politically, a lot of people are comparing this to the days of Indira Gandhi and Garibi Hatao and whether Modi is actually positioning himself in that sort of avatar. Do you believe that this is going to pay dividends politically for them?
A: I have no idea as yet. Because I think we haven't heard much from what is happening on the ground in UP apart from some people who have been there and they all think that there is economic distress but at the same time they also come back with reports.
Q: The BJP holds up the municipal election results as sort of a vote of approval for demonetisation so on and so forth.
A: Yes, but in the past though having looked at Indian elections those election results have been very poor forecasters of what happens in the main election by the way. So, I wouldn't read too much into it. But having said that the anecdotal evidence is that a lot of people are quite tolerant of this thing that they are saying that yes because they think that this is a bold step they think that this is something which is right because it is sort of very emotive thing that you are basically soaking this corrupt rich people. So, that is good like in a way. That is what happened in 1970s also back here in India. However, in terms of what is going to work today I don't know but here is what we know about UP that my own feeling is that it is very much going to be an election dominated by the traditional factors of cast but we in the media and everybody is going to portray that election as a referendum on demonetisation.
Q: Which is missing the woods for the trees.
A: Yes, but I am not sure that is going to be a big factor in the election because caste is so important and in terms of what is going to happen out there. So, this is going to be a fascinating thing that even though the election where we won and lost in UP based on the cast arithmetic in terms of it where everyone is debating where would the Muslim vote go this time, if it goes to Mayawati she is home, if it doesn't go to her then the BJP has a chance if they are able to split the vote between the Congress-SP kind of combined. So, elections would be fascinating, I am going to come back to India at the end of February to basically travel to UP. In fact I think it will be our 25th election trip that we have done over the last 20 years and seven of them I have done to UP because there is no state like UP for politics. You can sort of stop at any Dhaba in UP and get people very activated about politics. But it is very much still about cast arithmetic in that state. So, I am not sure demonetisation will be such a big issue on the ground there. But we in the media are going to portray that as a referendum on demonetisation. But what is happening regarding cast arithmetic I don't know as yet. I want to go with an open mind. When we do go in February to travel across UP.
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