Thursday, November 17, 2016

Corruption is a relative vision

Reuters: India's government on Thursday announced immediate steps to ease a cash crunch for farmers amid widespread criticism of Prime Minister Narendra Modi's shock decision to withdraw high-value bills in the middle of the sowing and wedding season.
Farmers have been left stranded as traders have no cash to pay for their produce, while millions of Indians lined up outside banks and post offices for the ninth day to exchange old banknotes or withdraw rationed money from their accounts.

Modi dropped a bombshell on Nov. 8 by abolishing 500 and 1,000 rupee notes that accounted for 86 percent of cash in circulation. The move was aimed at cracking down on the shadow economy but has brought India's cash economy to a virtual standstill.
Did economists miss this? Most of them were actually not looking, but I was looking. I immediately looked into the issue of government inefficiency vs criminal inefficiency. The corruption was bribery, a necessity with India's inefficient government.

I think this episode will reveal that India's government is plagued with special interest protections and bribery is needed to get around them.

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