State election results will be first test for India's embattled prime minister over cash crisis

The result of elections in five key Indian states will be announced Saturday. For embattled Prime Minister Narendra Modi and his Bharatiya Janata Party (BJP), the outcome will likely serve as the people’s verdict on his controversial and hastily announced demonetization plan.

In an November address to the nation, Modi explained that 500 and 1000 rupee notes were going to be removed from circulation – 86 percent of the money in Indian society. What followed can best be described as chaos. The financial system was utterly overwhelmed as lengthy queues formed outside banks across a country of 1.2 billion people.

The move – designed to rid the country of so-called ‘black money,’ counterfeit notes, and tax evasion – had a catastrophic impact on some of the nation’s poorest.

Surinder Singh has been a farmer all his life. Like many in Kheri Sadh, a village in the north-west of the country, he grows wheat and mustard and keeps cattle and sheep. The income he makes from the farm is supposed to provide for the 11 people in his family.

For a man who deals entirely in cash, the announcement came at the worst possible time. Jyoti, his daughter, was due to be married and he had bills to pay.

“I couldn’t get money from anywhere. I couldn’t withdraw more than 2000 rupees from the bank,” he told VICE News. “I was heartbroken as we couldn’t raise enough money to pay for everything so we had to get loans from here and there – that’s how we managed. The wedding simply had to go ahead.”

The wedding day was a memorable one for the family, but Singh’s mounting debt cast a heavy shadow on the celebrations and it’s clear who he blames.

“I have no trust in the Government,” he says. “They don’t listen to us farmers at all. But they also lied about their promises. The rich weren’t affected by the demonetization, but the poor are just getting poorer.”

Singh isn’t alone in his anger at Modi’s decision. And now his ruling BJP party face those affected at the ballot box. Exit polls released after voting ended Thursday suggest that the party is under-performing in Uttar Pradesh and Goa. Worse, if the figures are correct, the BJP may lose the state of Punjab. Solace may come from faring well in polling for the two smallest states holding elections, Uttarakhand and Manipur.

VICE News spoke to Mohan Guruswamy, an economist with the Centre for Policy Alternatives and a former adviser to the BJP. Walking through the bustling Khan Market in central Delhi, he points out those worst affected by the cash crisis.

“It’s people like street vendors, people selling flowers, people selling fruit and vegetables. These kind of guys were pushed out because they’re obviously not going to have a credit card machine,” he says.

For Guruswamy, the decision to remove the two notes from circulation was flawed from the outset.

“It has been a disaster which has visited India. Absolutely unnecessary. The economy was doing well – it was picking up. There were signs of investment going up, signs of inflation being under control, signs of improved public spending, and personal consumer spending. It (the demonetization programme) brought it to a complete halt. In fact, the fall in GDP has been so sharp, that most economists now expect a 2 percent drop in GDP for the whole year.”

He has doubts about Modi’s economic vision. “I don’t think he’s got the ideas. You gotta be a person who’s genuinely concerned, not about getting re-elected or winning small elections. He’s seems more focused on the small, on the his image.”

But speaking the VICE News, Nirmala Sitharaman – the Minister for Commerce and Industry – says people need to wait a little longer to see the long term benefits of the move.

“They (Modi’s critics) have been asking us what concrete steps the Prime Minister has taken to contain black money and now he’s taken a step, you may like it or you may not, but he’s taken a concrete step. And we have to make up our mind based on data rather than our emotions.”