25 November : International business magazine Forbes slammed Prime Minister Narendra Modi for his unplanned and poorly executed demonetisation scheme. It says
“Prime Minister Narendra Modi had a bright idea on how to solve India’s corruption problem quickly: get rid of the “black money,” the 500 and 1000 rupee notes. The trouble is he didn’t do his homework to figure out how his plan could be carried out.”
In the article written by Panos Mourdoukoutas, who is a well known economic professor, claimed PM Modi could have used alternative steps instead of carpet bombing the whole economy of India. He suggested Mr Modi had an option to use ‘Law enforcement and taxations’
To be fair, PM Modi had to keep his plan secret and act swiftly to avoid actions that would defy the purpose of his plan. He couldn’t, for instance, print new rupee notes ahead of time, and adjust the ATM machines to make sure that the new notes could get through, without alerting the public to what was coming.
Still, “PM Modi didn’t calculate all the costs and the benefits of the note swap,” according to LIU POST Economics Professor Udayan Roy. “Like the cost to everyday people who had to drop everything to stay on long lines. Most importantly, Modi didn’t calculate the impact the measure would have on the nation’s large informal sector.”
That cost could shave half a point from the nation’s growth, according to some estimates. “And he didn’t consider alternative ways of fighting corruption, like enforcing the rule of law, as in countries like Singapore, Japan, and the US,” continues Professor Roy.
Professor Roy is right. Lack of the rule of law is the ultimate source of corruption and cronyism in emerging markets, which prevents them from making the transition into developed economies.
He recalled the example of Bihar Chief Minister Nitish Kumar’s actions to curb the corruption and lawlessness in 2005.
But Modi may not have to look that far to figure out that the rule of law is the ultimate solution to India’s corruption problem. He can look inside India at the state of Bihar.
In 2005, Bihar’s chief minister Nitish Kumar launched an aggressive campaign to apply and enforce the law in a lawless society. “He forced the police to start pursuing crooks, who in Bihar included both powerful members of the state parliament and business cronies,” writes Ruchir Sharma In Breakout Nations. “To punish these characters in a state with a nonfunctioning judiciary, Kumar created ‘fast track’ courts that worked so fast that critics called it unjust haste…Lawless Biharis even started to pay their taxes, believing for the first time that the money might find its way to the public purse, not private wallets. Bridges and roads got built. Bihar started to function, then to fly. Now its economy is growing at an 11 percent rate, the second fastest in India, and Kumar is lauded as a model of what a straight leader can accomplish in a crooked state.”
The trouble is that implementing such a model throughout India is an extremely difficult task. It takes a lot of homework.
Is PM Modi ready for it?