In a bold move against corruption and unaccounted wealth, Prime Minister Narendra Modi has acted to arrest the drift in his popularity and place constraints on election funding, which will benefit him in crucial state elections next year.
But Modi’s late-night announcement of a crackdown on unaccounted wealth through the withdrawal of high-denomination bank notes left Indians with little time to prepare for the impact of the most extensive anti-graft operation in almost four decades.
With Rs.500 and Rs.1,000 notes banned as of midnight Tuesday until the government begins circulating new notes, including a Rs.2,000 note, those who operate in India’s extensive cash economy were struggling with the simplest transactions.
Even as small businesses, shopkeepers and restaurants experienced an immediate downturn in sales, many praised Modi’s push to battle corruption and said it could boost support for his Bharatiya Janata Party.
Having won the 2014 election in a landslide on the promise of tackling corruption and improving the ease of doing business, Modi’s star had started to fade as he faced criticism he only implemented incremental reforms. That election was dubbed the most expensive in Indian history with the government, political parties and candidates spending Rs.30,000 crore, according to estimates from the New Delhi-based Centre for Media Studies.
Worst hit would be regional parties like the Samajwadi Party, Bahujan Samaj Party, Rashtriya Lok Dal in Uttar Pradesh and Shiromani Akali Dal in Punjab, Misra said, noting that the opposition Congress party would be less affected.
Speaking to the state broadcaster Doordarshan News on Wednesday, finance minister Arun Jaitley said he wanted the country to go cashless.
Cashless or not, the government will have to deal with the potential deflationary impact on the economy, said Ajit Ranade, chief economist at the Aditya Birla Group. “I believe this was an audacious decision, it was Modi’s Pokharan moment,” he said, referring to the nuclear test that the Vajpayee government executed in 1998.