Demonetization: Policy vs. Narrative
How effectively can narrative shield a policy from public censure? Arvind Ilamaran explores how demonetization transformed monetary policy to a theatre, replete with populist antics, dramatic monologues, and hubris.
This is the first essay in a five-part series examining demonetization from the perspective of policy, economics, and political agenda. Next up: Hindol Sengupta explores the Kautilyan undertones of demonetization.
Countless thinkers and academics have dissected the Prime Minister’s move to remove extant high-denomination notes in circulation to combat a tentative list of socio-economic issues. While the jury is out on the long-term outcomes of this action, most economists, including Prof. Kenneth Rogoff who is usually cited for his conception of black money through demonetization, have severely criticized this policy change which has hurt the poor more than it has benefited.
Many observers have noted the fall in daily-wage labor opportunities due to the liquidity crunch in the system. Some media outlets report a loss of 400,000 jobs in the textile industry and thousands more in other sectors. The agricultural supply-chain has been decimated with farmers dumping produce on the roads in protest. Combine this with incomplete credit and insurance markets in rural India, drought hit-states and cash-driven informal economy, and you have a Greek tragedy playing out under the garb of righteous nationalism. While the swell of support for the move came from middle-class urban voters, as research shows, Director’s Law — bulk of public programs are designed primarily to benefit the middle classes but are financed by taxes paid primarily by the upper and lower classes — seems to have held its ground once again, further validating the theory. Lack of public evidence supporting demonetization and refusal of both government and Reserve Bank of India to disclose related documents brings into question the basis of such broad support for this move. I claim that this phenomenon can be explained by development of strong nationalistic narrative woven by the excellent oratorical skills of the Prime Minister of India.
Research shows that a narrative can be defined as, a story with a temporal sequence of events unfolding in a plot that is populated by dramatic moments, symbols, and archetypal characters that culminates in a moral to the story. Modi successfully built a policy narrative using every component from the aforementioned definition. Firstly, he offered a credible causal chain of events — once demonetization takes effect black money will be forced to enter the banking system and effect a loss to the agents in black economy of India and this would eventually lead to a corruption free country. But in reality, most black money is not held in the form of cash; while demonetization affects the stock of black money, it does nothing to stop its future flow (causes of black money remain unaddressed by this policy), and since most of the notes have been returned under formal channels, there is no evidence of black economy being affected.
Secondly, Modi’s speeches and appearances relied on all essential elements of dramatics to cement his policy in public psyche. He drew positive attention to the issue by addressing the beneficiaries as comrade-in-arms and packaging it as a war on corruption and firing public imagination about the scope of national transformation due to this reform. Once he had the attention, he leveraged his position as a development-focused statesman and the hard-built credibility of RBI to establish credibility. The need of this reform was established to be imminent for development and the scale justified any lingering concerns about heterogeneous regional impact. This satisfied the middle class voters who were already better insulated by existing digital payment penetration in urban regions. He concluded the performance with a strong call-to-action by redefining pernicious outcomes as short-term pain and an essential sacrifice to building a stronger India.
Finally, he built a strong moral story around a strong characterization of good vs. evil,by glorifying pain as a nationalistic virtue and vilifying greed as the root cause of socio-economic perils. While black money is associated with corruption, the larger share is hypothesized to be a result of tax evasion, a distinction that was lost in the initial euphoria. This point was addressed in detail by Ministry of Finance itself, back in 2012. Support for the policy was made symbolic with patriotism and opposition was dismissed for being anti-national, pro-corrupt and in short, for being ‘libtards’. By creating archetypal characters of the corrupt bureaucrat, suffering poor, evil businessman and benevolent leader, he imprinted the narrative ever more strongly, to the point that any call for evidence continues to be seen as redundant among the supporters of this policy.
Excellent writers have analyzed why this policy is an example of bad policy design. The point I have striven to convey is that despite being a bad policy, Modi’s success rests not just on his oratory skills but his genius of building a successful national narrative to cement his support. One caveat is that due to his ever changing goal for demonetization, he continues to lose supporters at the margin. But the larger prognosis and its devastating consequences for future policy making in India, continue to hold true. While policy narratives are critical for good policy design, jingoistic narrative without evidence is similar to the ancient adage of courage without wisdom. A majestic but hollowed tree.
Arvind Ilamaran holds a Masters in Public Policy from University of Chicago.
