As India's poor pay the heaviest price for Prime Minister Narendra Modi's bold demonetization move, many warn the current pain could eclipse long-term benefits and hurt the ruling Bharatiya Janata Party (BJP).
The November 8 ban on high-value currency notes has sent India's economy into a tailspin, as citizens struggle to get their hands on new bills, hindered by a limited stock of freshly-printed notes, daily account withdrawal restrictions, long queues at banks and empty ATM machines. With farmers unable to buy seeds and roadside shopkeepers unable to sell produce, the low-income population has emerged as the biggest losers from the milestone policy designed to stamp out so-called "black money."
Low-income earners are among the nation's most cash-reliant because many lack bank accounts or the required identity cards, so they are ineligible to swap notes for smaller denominations. They're also particularly vulnerable to the overall drop in consumer spending because their livelihoods tend to be more dependent on cash transactions.
Modi has acknowledged the problems but said people were "braving it out for the larger good and progress of the nation." The government said it could not engage in massive note printing or reconfigure ATMs ahead of the announcement for fear of tipping off tax evaders. In the meantime, the Supreme Court of India has asked Modi's administration to file an affidavit detailing the steps being taken to ease the inconvenience to the general public.
The frustration over the disorderly change may not bode well for the BJP, who rode to power in a landslide election victory two years ago.
The sudden withdrawal of existing notes from circulation had sparked a loss of trust in government, former U.S. Treasury Secretary Larry Summers commented in a blog post on his website on Monday.
While the famous economist has long supported the abolition of the $100 and the 500 euro notes, he does not support the seemingly rash execution of such a move by India. "The costs [of demonetization] exceed the benefits," he said.
Critics recognize that demonetization could yield higher government revenues and produce greater public goods, such as improved infrastructure, but like Summers, they warned of a greater negative impact from poor execution.
"This is politically a moment fraught with great risk for the BJP. It is the first time that the people's everyday experience is in conflict with Delhi's self-assured narrative. That is not a situation any government likes to be in," Sushil Aaron, an editor at the Hindustan Times, wrote in a recent editorial.
But it may still be too early to judge whether demonetization has hurt or helped the BJP.
"A lot will yet depend on the agility of the federal government to adequately and quickly respond to the pain felt by large sections of the population," Jan Zalewski, a senior analyst focused on South Asia at Verisk Maplecroft, said.
The lack of major anti-government protests so far suggested the BJP was in the clear for now but that could change, he noted.
"If people's livelihoods continue to suffer over the next few weeks, that could be a major rallying point for the opposition to revive their fortunes, and hurt the BJP pretty badly in upcoming state polls in Uttar Pradesh and other states."
So far, the process for rural residents to exchange cancelled notes before the December 30 deadline has been chaotic but many are optimistic for improvement.
"After lagging initially, implementation is now turning a corner and officials are likely to roll out creative new means of reaching rural populations in the coming weeks," Sasha Riser-Kositsky, Eurasia's Asia analyst, said in a Tuesday note. "The central government recently constituted small teams of senior bureaucrats tasked with assessing the local-level impact of the note cancellation."
Officials were also racing to re-calibrate ATMs, allow cashback-style withdrawals on some debit card transactions, most notably at gas stations, she added.
Such responsive measures would mitigate the short-term pain and boost public perception of the currency ban, thus boosting the BJP's popularity in the longer term, she concluded.