Lawrence Summers’sweeping allegations and ill willed prophecy about India’s demonetization -A rebuttal

The article Most sweeping change in currency policy in the world in decades  coauthored by Natasha Sarin and Lawrence Summers makes sweeping statements of India’s demonetization unhindered by facts.

While PM Modi’s Big Bang demonetization has gone down well with a large majority of ordinary Indians despite inconveniences and difficulties, the global media’s coverage has been heavily biased.  This is not surprising given the vested interests that control media empires.

But one expects economists to give well reasoned assessments.

Lawrence Summers is no ordinary economist. Among other things, Summers was the Chief Economist of the World Bank, Undersecretary for International Affairs of US Department of Treasury under Clinton Administration, and Director of National Economic Council a forum used by US President. He is the one who had recommended abolition of US $100 and Euro 500 notes.   “One of us (Larry) has long advocated the abolition of the $100 note in the US context and the 500 euro note (aka the Bin Laden) in the European context

Since Summers is undoubtedly the far more accomplished of the two coauthors and since article is published on his website, we can assume that he fully stands by the article.


Bye bye, facts

The economist duo ‘recognizes’ that ‘many who hold large quantities of cash in India have come by their wealth in corrupt or illegal ways’.  Do those who hold cash in large quantities in the US or Europe have come to be wealthy in legal ways? But that’s another subject.  The duo criticizes that what was legal tender was suddenly no longer legal. It doesn’t see that secrecy and suddenness of demonetization is a must to ferret out black money in cash form. In India, even critics (most of them) of demonetization agree that the suddenness and secrecy are critical success factors and they focus on execution issues.

Nor does the duo take into account the fact that India has been facing terror attacks from Pakistan which are funded by fake Indian currency -almost all of it in denominations of Rs 500 and Rs 1000.

The duo questions ‘equity and efficacy’ of India’s demonetization.

As far as efficacy is concerned, we have already seen that Pakistan paid stone pelting in Kashmir has stopped. Concerning black money in other forms, PM Modi has already announced that demonetization is just the beginning and that more actions like crackdown on benami holdings will come soon.

Equally importantly, India has near universal banking and it is rapidly digitizing. A nation-wide GST is another way of bringing large number transactions out of the black economy. The united payment interface (UPI) that makes person to person e-payments possible has been launched. The duo fails to factor in all these fundamental changes.

The economist duo also doesn’t recognize that even if majority of illegal wealth is in non-cash form, cash (means Rs 500 and Rs 1000 notes in India) is vital for the black economy to function.

We shall deal with ‘equity’ in a while.

Summers and his coauthor make sweeping and baseless allegation against Modi government

The duo says about Modi Government ‘ the temptation to expropriate is understandable’.  In effect, Summers and his colleague are accusing the government of giving in to the temptation of taking over someone’s property. This is a serious accusation and is completely baseless because any Indian citizen can deposit his old and useless notes in his or her bank account and get them credited without any limit. It remains citizen’s property. If questioned by Income Tax or other tax officers, citizens have to show that the amount is consistent with declared earnings and economic activity. Is the economist duo suggesting that things ought to work differently? Do the Income Tax people in US or Europe behave differently? So, how is this expropriation?  Summers and his colleague are wildly off the mark here.

Making legal ambiguity as a defense of the corrupt

The duo says ‘ Most free societies would rather let several criminals go free than convict an innocent man’  and the goes on to  ‘ Moreover, the definition of what is illegal or corrupt is open to debate given commercial practices that have prevailed in India for a long time’. Now innocents aren’t getting convicted nor is there any ambiguity in India about what is illegal and corrupt. Perhaps these ‘defenses’ have worked well for bosses of western financial institutions who were caught in various frauds and yet had no personal culpability despite tax payers bailing out their institutions.

The economist duo may note that the Indian legal system was available even for Kasab, a Pakistani terrorist captured in terror attack of 26/11 to defend himself for years.

Now, about the ‘equity’

The Big Bang demonetization announced by PM Narendra Modi caught many in a bind. The black money hoarders got a black eye. Parties like Congress, AAP, TMC, SP, BSP, RJD and yes, your neighborly Sena cousins got hit badly. Builders and Jewelers conducting illegal cash businesses got hit on head and saw stars. The stone pelters of Kashmir ended up jobless. The Naxalites got busy in scraping the bottom. The big bang detonated under seats power in Pakistan too.

Ordinary people complain about queues and inconvenience but they think it is a small price to pay to get rid of black money, mis-governance, and terror. Some cash dependent (black money) sectors like realty and jewelry have taken a hit. There may be a temporary slowdown. To more than balance the negative effect, if any, banks have received so much cash that they have started dropping lending rates. State Bank, India’s biggest lender is one of them. The fall in interest rates has taken place even though RBI hasn’t cut benchmark rates. Legitimate businesses will get boost.  We aren’t even talking about the illegal cash that doesn’t come out in open is now trash and its power to vitiate economic and social fiber is now Zero.    82% Indians favored the decision and 84% said Modi government was serious about the issue‘   It is a people’s movement. That’s equity.

Ill-willed prophecy?

The duo then offers a prophecy -‘ the ongoing chaos in India and the resulting loss of trust in government fortify us in this judgment’ -as a justification for its ‘judgment’!

There are baseless allegations against Modi government, legal ambiguity as defense of the corrupt, and an uncalled for (ill willed?) prophecy in Summers’ and his coauthor’s article.


Neither economics, nor logic

The quality of Summers’ and his coauthor’s  article reminds one of Arvind Kejriwal’s allegation The government expects to net 10-11 lakh crore rupees by asking people to surrender the spiked currency and write off the bad debts’ (read )  You can’t write off bank loans (assets) by using peoples’ deposits (liabilities) .

Do you find economics or logic anywhere?

Also read:

This article was first published here:


An example of how Narendra Modi works

Those who are ready to go behind the headlines by our paid media would have noticed some threads of how our man-on-the-job Narendra Modi is going about the job which we have entrusted to him -pull our country out of the morass of corruption, non-performance, feudalism, self-pity (as a nation), arrogance (to fellow Indians), backward and inward thinking and to put it on the path of performance and progress.

Mod won an unprecedented mandate last year. But he has no shortage of critics. Some well meaning, some prejudiced, and some corrupt and some corrupted.

Even the well meaning supporters tend be impatient and despair because they don’t see what they wish to see. The task of reviving India is humongous. The ills mentioned above are deep-rooted. If you are new in the job you wouldn’t know whom to trust to begin with. Modi knows something more than us.

I dare say that most of us (the public) have never ever revived even a small organization -leave alone a town, a state, or a nation. Yet we criticize Modi without having any clue how this job is done.

We know of something about counter-terrorism strike in Myanmar, relief operations in Nepal and J&K, seizing of terror boat.  Even the media-paid-for-abusing-Modi couldn’t block this. But did we notice that this summer has come and gone without those debilitating power cuts? Do we have any clue to how this happened? Unlike the drop in fuel prices this improvement hasn’t come due to global factors. The revival of Coal India’s mining productivity is behind this.

Coal India is Public Sector Unit and has been ridden with mafia, corruption, outdated technology, and unionism. To turn around even such a single PSU llike Coal India is a mammoth task. We have some encouraging results in an year’s time.

Newspapers and TV channels won’t write much about it because Congress has built a complex web of media and intellectuals support (funded by Middle East and West) and they wouldn’t want to you to know about Modi’s good work. The second reason is that you the reader or viewer is so overworked and under-paid that you have zero inclination to go behind  the headlines and dig around a bit.

Thankfully, some of us do just that.

Here is one more element of Modi’s wide ranging efforts.


> When former ICICI chairman KV Kamath was appointed chairman of the BRICS bank by the Modi government recently, he was pleasantly surprised because he had not expected it. It was a case similar to that of Subhash Garg, a secretary in the Rajasthan government, who was appointed executive director of the World Bank. It came totally out of the blue to him. And not without reason, because the convention has been that these posts don’t come without lobbying and those in the prime minister’s office (PMO) or close to it are favoured contenders. Moreover, even the post of the Union petroleum secretary, which has been, in the past, dictated by corporate houses on a few occasions, went to a man who didn’t expect it at all – KD Tripathi, a straightforward Indian Administrative Service (IAS) officer of the northeast cadre.
> Clearly, as the dust settles on the debate over how the Narendra Modi government fared in its first year, the most glorious of its achievements has been missed or has got relegated to the background – dismantling of the transfer-posting industry in the top bureaucratic echelons of Delhi. If one goes into history, it has been one of the primary causes of the failure of the Indian delivery system when it comes to results on the ground which the late Rajiv Gandhi had encapsulated very precisely: “When I release one rupee from Delhi, only 15 paisa reaches the end beneficiary.”
> Such a clean-up of the bureaucracy is happening for the first time in three decades – or to be precise, since 1980 when the then Prime Minister Indira Gandhi after her 1977 debacle decided to put personal loyalty above all and started tolerating corruption as a necessary evil. Amid arguments and counter-arguments as to how the Modi government did in various areas since it took over the reigns, this has been its most conscious attempt to clear the delivery system clogged by corruption and nepotism, a step necessary to translate government programmes into results for the benefit of the last person in the society.
> The biggest change he has brought about is that the selection of top level officers is now being done by the cabinet secretariat and the PMO and the respective minister’s role is now almost non-existent. During ten years of the United Progressive Alliance (UPA), ministers were allowed to choose their own secretaries which was one of the main reasons for pliant and corrupt officers being posted. In one case, the National Highway Authority chairman was changed four times in a short span of time at the instance of a minister because the chairmen were not adequately submissive to the minister. Former Comptroller and Auditor General (CAG) Vinod Rai said: “The earlier practice of allowing the ministers to choose his top level officers, in fact, destroyed the civil services because it resulted in massive lobbying at the ministerial level forced by extraneous objectives. Prime Minister Modi has indeed brought a lot of objectivity by stopping this practice and further showing his own commitment to the cause by getting an upright officer like PK Mishra to oversee postings in the PMO as his principal secretary.”
> Gone are the days when key postings were decided in Delhi’s five-star hotels. This is a major development for India as those who acquire a post through lobbying must either recover the money they have paid for the post or oblige their patrons after being posted. Many still believe that corruption in the bureaucracy has been one of the main reasons for India’s backwardness since independence – something that started in a closed economy and went on even after it was opened.
> True, postings of key officials are no longer decided in the power corridors or at late night dinner meetings in hotels as used to be the case under many governments of the past, but by diligent hands in the ministry of personnel, the cabinet secretariat and finally the PMO, who work for hours scouting for the right person for the right job. That Modi was committed to this from day one became clear when he appointed his former principal secretary in Gujarat and retired IAS officer PK Mishra as his principal secretary in charge of appointments with clear-cut instructions to clear the mess.
> Mishra has devised new methods of due diligence for knowing the true worth of an officer before his final selection which go much beyond the usual perusal of the records of the officers. It involves Mishra’s staff making elaborate inquiries from external and multiple sources about the reputation of the officer and his suitability for the job he is being considered for. Since the Modi government took over, over 550 postings have been made of officers of the level of secretary, joint secretary and additional secretary and almost all were done with objectivity and without lobbying.
> Interestingly, with an eye on selecting right people for the right jobs, some very innovative postings have been made in the larger interest of good governance. Take the case of Sanjay Chadda, an officer in the Indian Railways. His expertise in economics came to the notice of the Modi government when he was a member of the committee headed by Bibek Debroy on railway reform. Next, he was posted as a joint secretary in the commerce ministry. The praiseworthy part is that even IAS officers posted in states can hope to get big postings in Delhi which earlier they thought they would never get unless they were already serving in Delhi or had the right “pull and push” in the corridors of power in Delhi. According to Rai, the objectivity in postings is exemplary. Mishra said: “Merit in the form of transparency and efficiency are the government’s sole guiding factors when it comes to bureaucratic and even other appointments”.
> The best example of dismantling of the transfer-posting raj is in the Indian Railways, where many posts in the Railway Board and even those of general managers carried a price tag under many past governments. It is to the great credit of the Modi government and the PMO in particular, that in a short span, it has helped appoint 26 people as general managers and five members of the Railway Board, including the chairman in the most transparent manner which has no parallel in Indian Railways in the past 35 years. Significantly, as soon as Suresh Prabhu took over as the railway minister, he had requested the cabinet secretariat and the PMO to help him in appointing good officers.
> Interestingly, the figures that went with these posts as under the table money are mindboggling, according to Indian Railways sources. The post of certain general managers carried a price of Rs 2.5 to Rs 5 crore and of certain Railway Board members over Rs 5 crore. The most shocking information is that in the appointment of a Railway Board chairman a few years ago, a political leader allegedly took an unbelievable Rs 50 crore. The deal was that the chairman will pay the money in a fixed time frame after taking over. A former Railway Board official said: “By appointing honest officers to these posts in the Railways, the Modi government has curbed corruption of a minimum Rs 1,000 crore so far.” If Modi is to get maximum results for his initiatives, he has to now find ways to take this clean bureaucracy culture to the states through some innovative methods and innovation to have maximum impact.
> History is a great teacher. In 1707, when Mughal emperor Aurangzeb died in Ahmednagar in Maharashtra, virtually losing the 27-year epic war with the Marathas, he had one big regret which he put in his last will and testament: The greatest pillar of a kingdom is the keeping of information. The laxity of my spy network allowed Shivaji to escape from my clutches from Agra in 1666. That blunder is chiefly responsible for my misery now.”
> Have your say. You can comment here.Modi appears to have realised that unless he streamlines the bureaucracy and with it the delivery system, his so-called great vision is never going to get translated. He also seems to have taken a cue from Chattrapati Shivaji’s life story as described by the great historian Sir Jadunath Sarkar: “Shivaji’s dominion spread first of all through the conquests of hearts of the common people which only a strong and honest administrator can achieve.” Clearly, today as in Shivaji’s period, the way to their heart is through good governance, which in turn, is possible only through a good delivery system. And Modi seems to know it.


“Those who are against Modi”

Those who are against Modi are saying Modi is bad, because we say so. Never mind the facts, because we say so. They don’t need evidence. They talk about fascism but their this very attitude is intolerant. 

Somehow they turn sweet and indulgent when it comes to Congress policies of squandering public money for party and personal gains, its religion and caste based politics, its cynical support of extremist elements in Punjab, Kashmir, and Srilanka, its neglect of defense preparedness, its disastrous economic policies full of discretionary powers leading to corruption, its failed governance and its emergency and even recent instances of controlling social media. They don’t have any problem with Maoist insurgency which has taken out large tracts of India’s territory out Indian State’s ambit. For them it is just a development issue.

Modi and BJP are the only ones who are asking votes for development and governance. Those who oppose him just badmouth him -very much a Congress culture.


Let’s hope the Congress government gets thrown out in this election and that Modi, BJP, and NDA get a chance to put India on path of progress reversing the damage done by the Congress controlled by the Nehru-Gandhi dynasty.