SINGAPORE: India began its month-long election on Apr 11. About 900 million eligible Indian voters have headed or will be heading to polling stations, with the final ballot cast on May 19. This will be the largest election the world has ever seen.
Elections are significant events that determine the future of a country. Promises are dished out by political leaders with a vision for the country.
When people cast their vote, they are indicating which political party they are more aligned with on social and economic issues, foreign policy and national security.
Political leaders must not be afraid to make bold decisions even if these decisions seemingly make them unpopular in the short run. They should do what is right for the country rather than what is convenient or popular.
Voters should be cautioned against evaluating political incumbents on their entire spectrum of accomplishments and failures. Not all are equally important.
In India and many countries, it is the economic policy and reforms that remain a priority for national growth. It is therefore important to judge a party based on the results of such reforms and not just political rhetoric.
STATE OF THE ECONOMY: SEVERAL BOLD MOVES MADE
While there is still much work to be done to improve the Indian economy such as addressing the high unemployment rate, the incumbent Narendra Modi government has made several bold moves in the last five years to strengthen the economy.
This includes the Pradhan Mantri Jan Dhan Yojana (JDY) financial inclusion programme, demonetisation, a Goods and Services Tax (GST) reform and the removal of interstate border checks.
Started in 2014, the JDY financial inclusion programme provided bank accounts to over 400 million unbanked Indians. I studied these new account openings and found that while the usage of these accounts is not very high compared to non-JDY accounts, over a one-year horizon, these account holders were using them to remit money, receive government transfers and make payments.
More importantly, opening a bank account helped the unbanked gain access to formal lending by banks instead of reaching out to local moneylenders who charge exorbitant interest rates. This is a tremendous boost in elevating the lower echelon to be an active part of the modern Indian economy.
Two years later, in an unanticipated and radical move, the Indian government demonetised two of the highest value banknotes in circulation – 500 and 1,000 rupees. These banknotes accounted for almost 86 per cent of notes in circulation in value terms.
For a heavily cash-based economy like India, this sudden stripping of legal tender status of existing notes and the prolonged unavailability of new notes led to an immediate disruption to the economy and inconvenience to many.
Several reasons surfaced regarding the motivation for demonetising – flushing out black money, and combating tax evasion, counterfeiting and terrorism. Subsequently, over 99 per cent of the currency was returned to the central banks.
INDIA’S CASHLESS ECONOMY JUMPSTARTED
Amid grouses from Indians as well as political observers, interestingly, the controversial demonetisation policy jumpstarted India’s banking digitalisation. The sudden cash squeeze initiated a revolution towards a cashless economy via the rapid adoption of digital payment options.
Along with the opening of bank accounts from the JDY programme where Indians were issued debit cards as well as e-wallets such as paytm, it paved the way for digital commerce. Together, these bold moves have been a game-changer for the financial industry.
To date, over 40 per cent of cash transactions have been converted into digital transactions. Not surprising, digital usage is particularly higher among the youth, singles and the poor.
My study indicated that this usage pattern persists even during the re-monetisation period when cash made a comeback into the economy, indicating the long-term success of demonetisation in enabling new digitisation technologies to make inroads into consumer payment habits.
There are several benefits from transactional digitisation. Tax evasion becomes more difficult, theft is less likely to occur, and transactional security is enhanced. Digitisation from demonetisation has thus helped the Indian banking industry and strengthened the Reserve Bank of India’s position.
GST REFORMS HAVE BENEFITED MERCHANTS AND CONSUMERS
Another controversial move by the Modi government is the GST reform. Prior to the reform, taxes varied from state to state. The reform unifies the country into a single market with different tax rates for different product categories.
I analysed detailed transactions from 530 supermarkets of a leading chain across three major states including what was bought and at what price, as well as demographic characteristics of customers. This reform benefits merchants and consumers.
While prices rose in the immediate aftermath, merchants are able to claim huge GST-related tax subsidies, while consumers can switch their purchases to items that charged less tax.
Modi’s other policies have also yielded benefits. The removal of interstate border checks improved the efficiency of goods transported via trucks. This enhanced productivity and reduced corruption.
Other positive outcomes arising from border checks is that unsavoury activities such as gambling, prostitution and other vice-related activities have almost disappeared as drivers no longer spend hours to clear the border.
TOUGH DECISIONS ON TERRORISM AND PROTECTION OF MINORITIES
Beyond economic reforms, there are also non-economic reforms that have yielded positive outcomes. Of significance is the incumbent’s decisive and aggressive national security stance against terrorism.
They have taken an offensive stance of fighting terrorists instead of merely playing defensive. In a recent attack where a Pakistan terrorist killed over 40 Central Reserve Police Force personnel, the current government took decisive action and retaliated against the terror organisation inside Pakistan territory. Previous governments would have taken up the issue with the UN Security Council and left it as that.
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While this risky strategy may have cost the government the election, the decision was made to park politics aside and demonstrate strength through action.
They also addressed the injustice against Muslim women subject to divorce as practiced by Syariah law. Under Syariah law, a man can divorce his wife by simple stating the word talaq three times. This would put the woman under severe emotional, financial, and economic stress as she will not have recourse for the financial support for herself and the children.
Despite resistance from the opposition, the government introduced the Muslim Women (Protection of Rights on Marriage) Bill in 2017, making this practice unlawful.
VOTERS SHOULD REMEMBER EVERY VOTE COUNTS
Electing the wrong party can result in economic and social peril.
As recent history has shown in the United States and the Brexit referendum in Europe, the assumption that a vote does not count has dire consequences. We have also seen this complacency play out in the Middle East, Africa, Latin America and even in several Asian countries.
The contrast between the Indian electorate is clear and simple. Voters have a choice between a coalition that is dynastic, cronyistic, corrupt and weak on national security, and a party that wants economic reform in India with a proven record that their reforms have worked.
Whatever choice the people make, it is imperative for India’s voters to exercise their right and make a difference for the future of their country.
Sumit Agarwal is the Low Tuck Kwong Distinguished Professor of Finance, Economics and Real Estate at NUS Business School. The opinions expressed are those of the writer’s and do not represent the views and opinions of NUS.