Modi takes a gamble with money reform

Source:Global Times Published: 2016/11/26 1:23:39

Earlier this month, Indian Prime Minister Narendra Modi banned 500- and 1,000-rupee notes to crack down on corruption and counterfeit currency. Recently the Indian government halted the exchange of old notes at bank counters.

As more than 90 percent of transactions in India are made with cash, banning 85 percent of the currency in circulation brings a lot of trouble to people's daily life. The Hindustan Times reported that over 70 people died as a result of queuing at banks and ATMs.

The policy has sparked fierce criticism from experts and celebrities. Former Indian PM Manmohan Singh strongly opposed the demonetization, calling it an "organized loot," "legalized plunder" and "monumental failure."

Modi's move is very bold. We cannot imagine what would happen in China if the country bans its 50- and 100-yuan notes.

To prevent a leak of information jeopardizing the implementation of the demonetization reform, the rollout of the plan had to be kept confidential. Modi is in a dilemma as the reform aims to render the black money useless but the process goes against the governance principle of winning support of the public before initiating a new policy.

Demonetization can crack down on corruption and shadow economy but it is obviously unable to solve the deeper social and political issues that help breed the aforementioned problems. As far as the root causes of corruption exist, the problems will always resurface. In other words, the Modi government wishes to turn a long and arduous reform into a one-off deal.

Demonetization is a gamble for Modi. He bet on both the execution ability of the government and the tolerance level of the Indian society, hoping that the benefits of this reform can outrun the negative social impacts and low morale. 

The Western-style democratic system of India allows little room for such bold moves. However, he is really carrying it out, and will create a precedent no matter he succeeds or fails.

Reform is always difficult and requires more than just courage. Modi's demonetization came with good intention but whether it can succeed depends on the efficiency of the system and the cooperation of the entire society. More and more people are growing pessimistic about the ability of Modi's government to control the process.

China's reform and opening-up has been going on for nearly 40 years. It had ups and downs but remained largely stable. Its success is based on broad public support. The strong execution capabilities of the Communist Party of China are built on the consensus of the entire country. By observing India's reforms we will draw lessons, which would in turn help us understand our own reforms.

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