The press has not been kind to the economic reforms of Narendra Modi, the Indian prime minister. The Economist ran a cover story recently lamenting a missed opportunity, while the Financial Times has reported on the flaws in his big policy pushes, such as demonetisation and the new national sales tax.
Yet, we may be writing off Mr Modi too soon. His policies are struggling to achieve their intended aims. But they nonetheless hold the key to unlocking a crucial driver for change. A mostly unintended consequence of his two landmark policies may yet prove to be their saving grace.
Living in India, you will invariably be struck by a puzzle: the same Indians who demand quality and efficiency from private companies seem almost resigned to lethargic incompetence from government. Why? Taxes hold the key. We are wired to care more about things we pay than things we get for free. Behavioural economists call this tendency the endowment effect: paying for something represents a loss of personal funds, so we care more about such items than identical things we can get for free.
