Will demonetisation really help the BJP in the 2017 Uttar Pradesh Assembly elections?

Mohan Agarwal is one of Lucknow’s largest suppliers of campaign publicity material. He sells flags, caps, banners and bunting. His main customer is the ruling Samajwadi Party, which explains why his shop is right outside the party’s office.

Almost two weeks after demonetisation, Agarwal was circumspect about his business prospects in the months ahead.

“I expect my business to drop by 75%,” he said. ”Politicians won’t have money for basics like cars and petrol, where will they get money for publicity material?”

As the Modi government demonetised Rs 500 and Rs 1,000 bank notes, one of the first conspiracy theories offered for the drastic move was that Prime Minister Narendra Modi wanted to give his Bharatiya Janata Party a boost in the upcoming Uttar Pradesh elections by wiping out the cash reserves of other parties. The BJP, presumably, would have secured its own reserves.

Expected to be held in March, the polls are crucial for the BJP as it reaches the half-way mark in its term at the Centre. In the 2014 Lok Sabha elections, the BJP had swept Uttar Pradesh, winning close to 90% of the seats in the state. A win in 2017 would prove that 2014 was no fluke and cement the BJP’s place as the new Congress, India’s natural party of governance.

These allegations of political insider trading are hardly surprising. In fact, the last time demonetisation has been carried out, in 1978, the same charge was thrown about. The Morarji Desai Union government was accused of banning large banknotes to wipe out the election funds of the Opposition.

Cash is king

Given India’s low economic development, cash dominates. Ninety seven per cent of transactions are done via cash and India’s average number of card transactions per inhabitant is among the lowest in the world. Unsurprisingly, then, cash and black money fund elections too. Even as elections see big money, Indian political parties chose not to declare their source of funds, leading to a complete lack of accountability. Moreover, as this study shows, Indian elections are highly correlated with downturns in the real estate sector, a known sink for untaxed, black money. As elections came around, it seems that real estate barons funnel money away from construction to the political parties that patronise them.

Given that the Union government demonetisation scheme has sucked out 86% of cash value from the system, it is apparent that election spending would be hit in Uttar Pradesh.

Election dampener

At another campaign material manufacturer in Lucknow, the mood was just as sombre. Anup Agarwal contended that his business would shrink. “All politicians deal in cash,” he said. “This is India. Here I cannot trust anyone who pays by cheque. God knows when he’ll cheat me and run away.”

Agarwal also brought up the fact that politicians often cross the Election Commission-mandated spending limit of Rs 28 lakh for each Assembly seat. “That limit has no relation to reality,” said Agarwal. “We want the EC to increase this limit so that it encourages the candidate to pay us in white.”

In the town of Ayodhya, the incumbent Samajwadi Party legislator Tej Narayan Pandey would not say that demonetisation would directly impact his party – a statement which would end up also being an admission of using illicit funds. But he did accept that the move would end up hurting campaign spending across the board. “The upcoming election will be low key,” says Pandey.

That election arrangements have been hit by the demonetisation can be seen from the fact that chief minister Akhilesh Yadav’s “Vikas se Vijay Rath Yatra” has been deferred. The rally was supposed to start on Monday.

Behenji’s funding

However, the party widely-believed to be most affected by demonetisation is the Dalit-led Bahujan Samaj Party. In fact, the BJP responded to the Bahujan Samaj Party’s condemnation of demonetisation by alleging that the criticism was driven by the black money losses of the party and its leader, Mayawati. “The fact is that she had collected crores of rupees by selling BSP tickets and all the money have become garbage now [after demonetisation],” alleged the BJP’s National Secretary Shrikant Sharma. “She is frustrated and out of this is levelling irrational charges”. The creation of this sort of moral binary means that opposition to demonetisation, in spite of hardships, has been slow to take off.

Mohammad Shahid, spokesperson for the Samajwadi Party, alleged that the Bahujan Samaj Party’s chief, Mayawati, asked her candidates to exchange the old demonetised notes for new ones. “She called the party’s candidates to her Lucknow home the day after the demonetisation announcement and asked them to take back the money they had paid to the party,” claimed Shahid.

The allegations of illicit funding remains unproven against any party – including the Bahujan Samaj Party. But data shows that the unique crowd-sourced funding structure of the Bahujan Samaj Party makes it likely that demonetisation would affect it the most. In 2014-’15, the Bahujan Samaj Party filed a submission with the Election Commission reporting that it had not received a single donation above Rs 20,000 (donations below that amounts are not required to be declared). In contrast, the BJP received an amount of Rs 437 crore for 2014-15 in contributions exceeding Rs 20,000.

In a study based on 2008 data, the non-governmental organisation Association for Democratic Reforms estimated that the Bahujan Samaj Party received 100% of its funding in cash. The BJP meanwhile got 86% of its funding in cash.

Given the Bahujan Samaj Party’s dependence on unorganised sources of funding – which is concomitant with the existence of hard cash – the effect of the demonetisation on its campaign for the 2017 elections would be interesting to watch.