Is Modi a powerful leader
India: The Modi Experiment
Vadnagar / Bangkok A few weeks ago, Sajid Patel did not let the Indian head of government get off the ground. The young man is the proud owner of a fashion store and lives in Narendra Modi's hometown of Vadnagar, in the far north-west of the country: If he looks out the window, he looks at the platform where little Narendra Modi once sold tea as a little boy. "He's my hero," said the young man.
Those were good times: Patel's business was booming and Vadnagar was booming too - even more so than other parts of the country thanks to the support of the city's powerful son. Patel raved about the new bus station for which Modi was responsible, the new hospital and the new streets. But the image of his hero has gotten scratches - and huge ones.
The small retailer Patel has gotten into a gigantic experiment, the outcome of which is still uncertain. On the night of November 9, India's head of government declared bills to the value of 500 and 1000 rupees to be unacceptable means of payment. If you want to have valid notes, you have to exchange the old notes or first deposit them into a bank account. But even a month after the announcement of the so-called demonetization, the cash remains scarce.
The businessman Patel felt this, the fight for cash had broken out in Vadnagar as well: “People have no money, nobody comes into my business anymore,” he says. "The situation is really shocking." He does not believe that the crisis will be over anytime soon. "I'm afraid this will take months."
As Modi's reform continues to send shock waves through the Indian economy, it is becoming increasingly clear that his political fate now depends on it. At the beginning of the second half of his tenure, Modi is betting everything on one card. "If the demonetization is a success, he will be the undisputed leader," suggested former Indian Prime Minister H.D. Deve Gowda. "If it fails, he is finished."
Modi continues to praise his reform as a necessary blow to corruption, the shadow economy and tax evasion: all those who hid their untaxed income at home are to be exposed. In fact, tax evasion is a big problem. It was only in May that it became known that only around one percent of all Indians pay income tax at all. But what should ensure transparency and order causes more and more frustration: Modi sends his entire people through purgatory so that individuals atone for their sins.
Return to the barter economy
This week the Indian central bank had to admit that it still cannot assess the consequences of the reform. She considers the measure to be sensible in principle and the current turbulence would result in many advantages. The future outlook is still uncertain in view of the demonetization. The monetary politicians could not say how long the cash shortage would last.
It is above all the poor who are suffering from the drastic measure: While the urban middle class has long been paying with credit cards or cell phones, until recently the rural population largely did their business with cash. Now there is no more cash in circulation in remote villages, according to media reports. There is now being exchanged for natural produce again. According to trade unions, millions of Indians are waiting in vain for wages - if they can currently find a job.
In view of such reports, the American investment bank Goldman Sachs has lowered its growth forecasts for the current quarter from more than seven percent to just four percent. The analysts of the financial house Ambit Capital in Mumbai are even expecting growth of only 3.5 percent for this year - which would roughly halve the growth rate.
Should the economy suffer sustained damage, Modi's most important election promise would be at risk: modernizing India's economy and creating millions of new jobs. Modi has lowered the barriers to direct investment and initiated a long-awaited reform of the VAT reform. However, the economy did not experience any real upswing. The fact that the growth rate has increased significantly under Modi is mainly due to a new statistical calculation method.
By far not all of his plans were able to push through the reformer against the stubborn resistance of the opposition in the upper house. And it could take years for the reforms that have been decided to take effect. "The government is now halfway through its term in office and fears that it looks like nothing has changed," said Deepak Nayyar, chief economist in a previous Indian government. "So she wanted to announce something really drastic."
The latest move may just be the beginning. Modi now publicly dreams of the “cashless society” in which corruption and tax evasion are a thing of the past. "Next year we will be a new nation," he said in a radio address. "I would like to say to the dealers among my brothers and sisters: this is your chance to enter the digital world."
The dream of the "cashless society"
But for many this utopia sounds like a mockery: Hundreds of millions of Indians simply have no access to this digital world: half of the population does not even have an account. Card readers are simply too expensive for small businesspeople. Just a third of Indians own a smartphone and network coverage remains patchy. The Indian Nobel laureate in economics, Amartya Sen, currently a professor at Harvard, calls Modi's action a "despotic action".
Modi is now trying to make the transition to the cashless economy not only with the stick, but also with the carrot: This week he announced several incentives to convince the population of his cashless future: For example, remote villages with fewer than 10,000 inhabitants should now have two card-reading Get devices provided by the state. In addition, discounts at state petrol stations and the railroad attract visitors.
The measures are one of the numerous readjustments and breakdowns of the reform. Modi apologizes that the preparations had to be carried out in strict secrecy. As has only now become known, only six top officials were privy to the project, they worked in two rooms of the prime minister's residence: From there, the small team worked on a reform that would affect more than a billion people.
But the complications that now arise are likely to cause many to doubt the core competence attributed to Modis: Until now, he stood for the type of politician who got projects on their toes. Modi cultivates the image of the workhorse that has worked its way up through ambition and without rope teams - and can therefore take action regardless of losses. But the question is how much longer people can take the mess. "Every day there is a new change," complains Patel.
One who believes people will continue to trust Modi is his older brother. He runs a retirement home in the Modis hometown - and sees himself a bit as Modi's contact with the grassroots. "People understand that this action is necessary for corruption to end," says Soma Modi.
In general, he thinks that the demonetization is proceeding in a fairly orderly manner, given the magnitude of the reform. In any case, he has not had any problems so far. He does not expect the head of government to turn around. "My brother doesn't change his mind," he says. "He was like that even as a child."
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