Karnataka Assembly poll 2018: Demonetisation and its enemies

How much did demonetisation really affect the economy of Karnataka? And how much is it going to affect its politics? 

For Mangaluru, the move was pure and unmitigated disaster. “In the first few months, construction was halted and finally came to a complete stop. It was traumatic. Mangaluru is the biggest city in Karnataka after Bengaluru. Things are limping back now. But builders here have still not recovered their losses and continue to feel the pinch” said Vishwanatha, professor and chairman at the economics department of the Mangalore University. “Moreover, unemployed wage labour from Odisha and Uttar Pradesh used to come here and work in the construction sector. All those jobs were lost,” he said.

Not just that, labourers from the Hyderabad-Karnataka region, who would seasonally migrate to Hyderabad, and as far away as even Visakhapatnam, were forced to stay back in their villages to find alternative work.

Vishwanatha said the GST, which added 18 per cent tax to the total price of an apartment, meant that builders and developers have had to artificially inflate real estate prices. The move has hit builders and investors alike. Remittances from abroad — especially the Gulf nations — used to fuel construction. Remittances themselves have slowed down. And investment in real estate is no longer attractive. Real estate biggies such as the Rahejas and Purvankara had planned big projects here. A 100-acre township at Kulai set up by the Rahejas has few takers. Prashant Puthran, proprietor of Puthran Real Estates, said: “People who have bought will not bring the prices down. People who want to buy have no money. I haven’t sold anything for months.”

For Mangaluru, specifically, demonetisation was a double whammy. The city provides extensive employment in the services sector, especially hotels and hospitality. In the first six months, all hotels were reeling from the effect of a cash vacuum: Business in small eateries was down 50 per cent. In the bigger hotels, it was down as much as 70 per cent.

There is recovery, but it is slow, said the proprietors of Machali, the iconic, no-frills eatery that is always packed with people for the coastal fish repertoire the restaurant serves. “On Saturdays and Sundays malls and small restaurants used to be packed; migrant workers would get the day off and would go out and enjoy. Once the migrant labour left, these establishments found fewer and fewer customers,” said Manohar Prasad, editor of popular Kannada daily, Udayavani.

Vishwanatha said ironically, the elections have kick-started business. “The parallel economy used to fund and support unorganised labour. Now, after GST, people owning small businesses are more concerned about legalising their enterprise. So investor sentiment is still depressed. For the last two months, cash is back and there is work if you can pay cash. But after the elections….I really don’t know”.

Memories of demonetisation and its effects linger in public memory. Add to this, the impact of the Anna Bhagya and Indira Canteen schemes launched by the Siddaramaiah government and there is little by way of criticism of the government. But there is another view. Gaurav Singh, a deputy manager at the Mangalore Refinery and Petrochemicals Limited (MRPL), the biggest government undertaking in this part of Karnataka, is from Bihar. He came to MRPL seven years ago and has lived in Karnataka ever since. He has just opened a small café with his brother in Mangaluru. He says demonetisation has a different meaning for North India and a different one for the southern states, especially Karnataka. “Corruption is less here, much less. As an individual, I would prefer to pay ~30 more to the government than pay ~50 under the table. But people here don’t have to pay so much to get work done any way. So as an anti-corruption move, for them, demonetisation had little meaning.” 

Politically, this translates into support for the Congress but also cautious admiration of Prime Minister Narendra Modi. “We are expecting around 100,000 people for the Modi rally,” Prasad said on Monday. “People will come, because Modi is still seen as a statesman and what he says does capture the people’s imagination. They will listen and clap. Then they will remember the days when they had to stand in queues outside banks to get money. And they will consider the fact that they are not voting for Modi but for Yeddyurappa. That will weigh into the way they vote; both now and in 2019.”