Many people were shocked when the pains of demonetisation did not have any adverse effect on the Bharatiya Janata Party (BJP)'s performance in the Uttar Pradesh assembly elections in 2017. In Gujarat too, despite there being discontent against Goods and Services Tax (GST), big cities overwhelmingly voted for BJP in the December assembly elections.
These results belied statistical evidence that demonetisation and GST did have a significant, if only temporary, adverse impact on economic activity, especially in the informal sector. What explains this hiatus between economic and political outcomes? Numerous interviews conducted by HT across Karnataka just ahead of the elections could answer this question.
It is around 10pm in Puttur, a small city in Dakshin Kannada district. A group of vegetable sellers, all of them Muslims, is preparing to shut shop when we approach them to talk.
They begin by complaining about high diesel and petrol prices and then claim that demonetisation had made a big dent on their incomes. We get a completely different picture when we talk to a Hindu vegetable seller just a few metres ahead. There were some problems, but it was nothing extraordinary, we are told.
The experience is similar in Mangalore Bunder the next morning. Hundreds of fishing boats have arrived, and trucks are waiting to carry the catch to various places. Hindu shopkeepers do not admit to facing a lot of problems due to demonetisation or GST. A Muslim lorry driver has a lot of complaints about both demonetisation and GST, though. For every trip he makes, he has to pay Rs1,800 in GST (which was not the case earlier), he complains.
It is clear that responses to economic policies such as demonetisation and the implementation of GST are not independent of the overall political moorings of respondents. In the communally polarised coastal region of Karnataka, the communal divide seems to have subsumed issues such as demonetisation.
Things are not in black and white everywhere though. At the Kapu beach in Udupi district, we meet a group of young men who cater to the tourism economy. One of them operates two sand-scooters. He explicitly admits to voting for the BJP. His Hindutva leanings are visible. He proudly displays the custom-made trident shaped key for his sand-scooter. It is his response to the economic performance of the Modi government which is surprising though. Demonetisation has killed the business on the beach, he admits.
The difference in the approach of BJP supporters described here probably captures a political economy insight. Demonetisation did have an adverse impact on people, but necessary economic activity such as fishing or vegetable sales did not come to a grinding halt. Those who are invested in Hindutva are prepared to politically forgive the BJP for this policy, lest the Muslims gain politically.
Things might have been drastically different for the BJP supporter engaged in the tourism economy though. Demonetisation's dent on incomes in the informal sector might have led to a long-term postponement of expenditure on luxuries such as sand-scooter rides and family picnics on the beach. The pain has been too much for him to pretend it is not there. For Muslims, the economic pain is another addition to other problems they face at the hands of BJP. These divisions explain why there has not been and probably will not be a one-to-one relation between economic and political implications of demonetisation.