BY UPAMANYU LAHIRIOn Nov. 8, 2016, as Donald Trump stunned America and the world by pulling off an upset victory in the presidential election, halfway around the world, Indian Prime Minister Narendra Modi also stunned his country by declaring 86 percent of the currency in circulation immediately invalid. Demonetization, as the policy is called, immediately banned 500- and 1,000-rupee notes and replaced them with new 500- and 2,000-rupee notes. People could exchange their old notes for new ones at banks and ATMs, 4,000 rupees at a time, for a period of one and half months. The new notes were in far short supply than the overwhelming demand for them. People often had to wait in line for days before they could exchange their notes. Even when they could, the 4,500 rupee limit meant that people had to do this for days or weeks on end before they could exchange all of their old currency for new ones. According to the government, banning these notes will crackdown on untaxed wealth (called “black money” in India) and encourage digital and other non-cash forms of payment. Given that India is a primarily cash economy, this policy disrupted daily life; Indian citizens waited hours in serpentine queues outside of banks and ATMs to exchange old notes. Modi pitched it as a step against corrupt elites who evaded taxes, promising that the hardships caused by the policy would only be temporary and yield long-term gains.
What people think of this demonetization policy will become apparent this month during provincial elections in five Indian states with a combined population of over 250 million. These elections are considered the most important elections in the country ahead of the national elections in 2019. The results will set the tone for 2019 by giving an upper hand to whoever emerges victorious in these elections because India’s most populous state, Uttar Pradesh, is among the states going to the polls. Uttar Pradesh’s importance in Indian politics cannot be overstated. With a population of over 200 million, it would be the fifth most populous country in the world if it were an independent country. Thus, these elections will be the largest democratic process to be conducted this year, ahead of the French and German elections later this year. Uttar Pradesh sends 80 of the 543 elected representatives to the Indian national parliament. It is thus often said that “the road to Delhi [the capital of India] passes through Lucknow [the capital of Uttar Pradesh].”
In the last national elections in 2014, India’s ruling Bharatiya Janata Party (BJP), fueled by a wave of popularity in favor of its prime ministerial nominee Narendra Modi, swept the state, winning 71 of Uttar Pradesh’s 80 seats in parliament. However, this time the election will likely be much harder for BJP because of the absence of any such ‘wave’ in its favor. BJP does not have a charismatic state-level leader who can be the face of the party and take on rivals, and it depends almost solely on Modi’s popularity to see them through. In addition, the shadow of demonetization looms large on this election. The suddenness of the move and insufficiency of new notes to replace old ones created widespread hardships for millions in a country where an overwhelming majority of transactions are still carried out in cash. Particularly hard hit were the rural poor who are not part of the digital economy and receive cash wages. Although the prime minister and his party have tried to downplay the effects as temporary pain to take on wealthy individuals who evade paying taxes, the opposition parties have charged the government with causing needless misery for ordinary citizens. The state assembly elections could be seen as a referendum on this policy. However, if the BJP manages to overcome these factors and win in Uttar Pradesh, it will be a tremendous boost to the party, reaffirming its status as the premier political force in the country and the favorite to return to power in 2019.
These elections are arguably even more important for the country’s principal opposition party, the center-left Indian National Congress, more commonly referred to as the Congress. The Congress has yet to recover from its crushing defeat to the BJP-led alliance in 2014 after two terms in power. Since then the party has lost more ground, losing several state assembly elections, and it remains in power in only seven of India’s 29 states. Acknowledging that they may not have the power to take on the BJP by themselves, they have allied with the regional Samajwadi Party (SP), which is the incumbent party in Uttar Pradesh led by Chief Minister Akhilesh Yadav. Yadav just emerged victorious out of a bitter family feud with his father and uncle for control of the party. At 43, he is a relatively young leader in Indian politics. His first term as chief minister saw its share of law and order problems across the state, a problem traditionally associated with his party. However, he is also credited with building highways that connect major cities across the state and providing cell phones and laptops to meritorious students from economically weaker sections of his state. Due to this, even in India’s and in particular Uttar Pradesh’s notoriously caste-based politics, Yadav’s widespread appeal and goodwill among people of the state cuts across caste lines, and is particularly appealing to young people. A victory for the SP-Congress alliance will rejuvenate opposition parties across the country, and it could signal to voters that the Congress remains a viable contender for power in Delhi in 2019.
Also in the contention is the Bahujan Samaj Party (BSP) led by former Chief Minister Mayawati Prabhu Das. Her party draws support primarily from the Dalits, who are the historically oppressed castes in Indian society. In 1995, Mayawati became the chief minister of Uttar Pradesh, the first Dalit chief minister of any Indian state. Given India’s centuries-long history of caste-based oppression, Mayawati’s success was a landmark achievement. For this reason, she remains an icon to many Dalits to this day. However, because she and her party are not media friendly, they have largely avoided the media spotlight focused on her rivals the Congress, BJP and SP. She is considered by observers to be the dark horse of the race who could pull off a surprise victory.
These elections promise to be a nail-biting affair. Some pre-election polls show the BJP has an edge, while others suggest the Congress-SP alliance is ahead. Other polls suggest a hung assembly will be elected, in which case no party gains the clear majority of seats required to form the government. Whatever the results, it will be hugely consequential for India and even the world. Many international observers see Modi as part of a trio of strong nationalist leaders of large Asian countries who have emerged in recent years, including President Xi Jinping of China and Prime Minister Shinzo Abe of Japan. A victory for Modi’s BJP will further enhance his status as a nationalist leader, while a defeat will substantially diminish his political capital.