PM Modi's Credibility On The Line As 50-Day Promise Ends

Short of a miracle, India's prime minister Narendra Modi will fail to meet his own 50-day deadline to restore order to the country's economy and ease the hardship faced by ordinary citizens following the chaos of his sudden currency ban. 

In an emotional plea to citizens following the withdrawal of 86 percent of the currency in circulation in a bid to target corruption, PM Modi promised the inconvenience would all be over by December 30. 

But demonetization's trail of devastation -- on farmers, workers, small shopkeepers, low-income households and businesses -- is yet to ease. There continues to be queues spilling out of banks and newspapers are carrying daily stories of rural distress. 

Credibility on the line 

Although PM Modi's credibility is at risk as his deadline passes, the jury is out on the long-term economic and political fallout. So far his public support remains strong, with some standing in queues waiting to access cash still voicing their approval of the prime minister's decision to target unaccounted wealth. 

Add to that, India's fractured opposition has not been able to generate a backlash against the strife triggered by the world's most sweeping currency policy change in decades. 

Still, PM Modi faces the risk of stiff political opposition and losing state elections in coming weeks. 

"Now people will ask him what is the gain after suffering so much pain?," said Ajoy Bose, a Delhi-based author and political analyst. "He will try somehow to give a good spin to it. But he has to prove how the country is gaining. Otherwise he will be in trouble." 

The next real test of the cash shortage fallout will be held through the five assembly elections, including most populous state Uttar Pradesh, expected by April. "If he loses the ability to win elections and fails to gain public trust, his ability to push hard reforms will be reduced," said Bose. 

Growth forecast slashed 

On the economic side, experts are slashing India's growth forecast after the cash ban dented demand. The economy is projected to grow 6.5 percent in October-December instead of the 7.8 percent economists had predicted earlier. All eyes will be on the government's forecast for the year through March -- due January 6. 

In Haryana, farmer Harpreet Singh had to destroy his coriander field and sow his wheat crop when price of the herb dropped to as low as one rupee per kilogram compared to about 20 rupees before Nov. 8, when PM Modi announced the banning of 500 and 1,000 rupee notes. 

"There is a slump in demand," said Singh, explaining he had suffered a loss of 12,000 rupees because the traders who usually bought his produce were unable to access enough cash for the purchase. "There was already a delay in wheat sowing and I didn't want to waste further time." 

Another farmer, Charanjeet Singh, is nervous that he will not get a good price for his potato harvest. "The situation is grim and there is no hope of an early revival," he said. 

Since the currency ban, many have found illegal ways to convert the so-called black money into genuine wealth. In response, the government has amended or clarified its rules more than 60 times to plug the loopholes. Of the 15.4 trillion rupees of junked currency, about 13 trillion rupees of bills have been deposited in banks, as of the first week of December. 

Improvements to come 

Seeking to reassure the public, Finance Minister Arun Jaitley said on Thursday the currency availability will improve in the coming weeks. Economists have warned it could be months before the situation stabilizes. 

While defending his move as an important step in fighting against black money and corruption, PM Modi on Nov. 13 sought time from people to end their hardship. 

"I have asked for just 50 days," PM Modi said in his emotional speech. "If after December 30, there are shortcomings in my work or there are mistakes or bad intentions found in my work, I will be prepared for any punishment at any crossroad of the county that you decide for me." 

PM Modi's political rivals have stepped up the pressure against him. This demonetization move "is for 50 families and for the country's one percent super rich," said Rahul Gandhi, the vice president of the Congress party. "It is the poor, farmers, laborers, middle class and small shopkeepers who are being sacrificed." 

PM Modi is likely to speak about his road map after the demonetization period is over in his address to the nation on Dec. 31. 

But as the hardships continue into the new year, "it is difficult to expect people not to respond negatively," said Sandeep Shastri, an author and pro-vice chancellor at Jain University in Bengaluru.

© 2016 Bloomberg L.P