PM Modi says cash crackdown is a fight for the poor

By Manoj Kumar

NEW DELHI (Reuters) - Prime Minister Narendra Modi on Tuesday defended his decision to abolish high denomination bank notes that has left the economy reeling, calling it a "fight" for the poor.

Modi's comments came days before the start of a regional assembly election in Uttar Pradesh, a battleground state that is home to one in six Indians and will help in determining his chances of winning a second term in 2019.

While the decision to outlaw 500- and 1,000-rupee bank notes late last year was part of a broader crackdown on corruption, the sudden withdrawal of 86 percent of currency in circulation had left businesses, farmers and households all suffering.

The chaos caused by the cash crackdown led Modi's predecessor, Manmohan Singh, to describe it as "organised loot and legalised plunder" of the country.

In his first comments on the bank-note ban at a rowdy session of parliament, Modi shot back at his critics.

"The decision on demonetisation is a movement to clean India," Modi told lawmakers.

"My fight is for the poor and giving the poor their due. This fight will continue."

Asia's third-largest economy is limping back to health after the cash crackdown. The Nikkei/Markit manufacturing purchasing managers' index for January showed expansion though the services gauge showed a third month of contraction.

The economic disruption has also put India's ranking as the world's fastest-growing big economy under threat. The International Monetary Fund last month cut its 2016/17 forecast by one percentage point to 6.6 percent - lagging China.

Still, Modi justified his decision, which he said had created a money trail for tax officials to pursue. He urged tax evaders to come clean, or risk the confiscation of their property and time in jail.

With opposition parties making the note ban an election issue and mocking the government for its poor implementation, Modi has unleashed a slew of measures to ease the pain.

In its annual budget last week, his government increased spending on rural areas, infrastructure and fighting poverty. It also halved the basic personal income tax rate and cut taxes on small firms that account for 96 percent of India's businesses.

Analysts describe the Uttar Pradesh state election as a mid-term "referendum" on Modi as the cash crunch has inflicted the most pain on the poor. But Modi said he was championing their cause.

"We do not see everything from the prism of elections," he said in a speech during which he was repeatedly heckled from the opposition benches.

"The interests of the nation are supreme for us."

(Additional reporting by Rajesh Kumar Singh; Editing by Douglas Busvine, Robert Birsel)