Modi’s Fantastic Promises – India’s Currency Ban, Part VII

by Jayant Bhandari, Acting Man:

This article continues right where Part VI left off (for earlier updates on the demonetization saga see Part-I, Part-II, Part-III, Part-IV, and Part-V).

There is still huge support for Modi even among the poor. A big carrot is dangled before them, which makes many stay numb to their current suffering. During his election campaign in 2014, Modi promised to deposit more than Rs 1.5 million (~$22,000) in each poor person’s account once the government had seized all black money.

Massive problems have been reported with the new bills. Some have been printed on defective paper and are simply falling apart. The inferior quality of the print job is generally often on the appalling side of deplorable. The new notes are counterfeited with great abandon, quite likely to a much greater extent than they ever were in the past. So much for Modi’s plan to stop counterfeiting.

How he arrived at this fantastic figure is anyone’s guess. But given India’s GDP of $1,718 per capita, Modi has promised to deposit 1,300% of annual GDP in individual bank accounts. The total amount would be larger than the entire GDP of the US. Evidently, this does not even remotely add up.

So what is really motivating the anti-corruption feelings of so many Indians — including the salaried middle class — simply seems to be a mixture of greed and envy. There have also been hints that India’s income tax might be repealed. This is very appealing to the salaried middle class.

Banned bank notes must be deposited by 31st December 2016. Modi supporters widely expect that the windfall he has promised them will be announced soon thereafter. Not only isn’t there going to be any free stuff, but bank accounts are likely to stay frozen, because the Indian government is incapable of printing all the cash needed to re-liquefy the economy.

On January 1st 2017, when members of the salaried middle class start waking up to the reality that they have been scammed, Modi’s support should begin to crumble. Anecdotal evidence indicates that not only the opposition, but even members of Modi’s own party are unhappy with the demonetization scheme. These politicians have been left holding bags of banned currency, on which they have had to take a cut of 20% to pay for the services of the mafia.

They cannot oppose Modi openly, as that entails the risk that they might be seen as corrupt and unpatriotic. It seems likely that Modi will eventually lose his political support. But by then he may well have established himself independent of his party. He could easily be an autocrat in the making.

Vegetable prices have declined by 25% to 50%. Electronic transactions fail even in big cities, as connections are often bad. How is this supposed to ever work in rural places, where electricity and internet connections might not even exist? One needs to be mindful of the fact that prices are not going down due to excess supply, but because poor people cannot buy anything. Are they going hungry?

Photo via indianexpress.com

Is India the Next Venezuela?

India, the world’s largest democracy, is surrounded by banana republics as the accepted narrative has it: Pakistan, Bangladesh, Nepal, Sri Lanka, Myanmar, Thailand, and Afghanistan. The situation in the Middle East and in Africa is considered yet worse.

There seems to be a lot to celebrate about India. Its democracy has been sustained over the 70 years following independence. The army has remained fully under civilian control. Today India is also seen as an information technology juggernaut. It is claimed to be the fastest growing large economy. India is the next China, so the story goes.

The reality is very different from the perception of those who only see India through the lens of the international media. India has a population of 1.34 billion people with a GDP of $1,718 per capita. Almost 50% of India’s citizens have no access to toilets, electricity or running water. 48% of children under the age of five are stunted, a percentage greater than in any other major country in the world.

Contrary to the perceptions created by the international media, if Africa were a country, it would actually look better than India with respect to these metrics. India has lower GDP per capita and a proportionately greater number of Indian children are exhibiting stunted growth.

As a second step in trying to understand India, it makes sense to split the population in two parts: the 25% that have benefited — directly or indirectly — from the internet and cheap telephony over the past three decades, and the remaining 75%, whose lifestyle is comparable to a medieval existence, almost animal-like.

For all intents and purposes, India is a banana republic, a wretched place of poverty and disease. The only difference between India and other well-recognized banana republics is that India has so far avoided overly negative headlines in the international media; Indian lobbies in the US and the UK work very hard to make India look good. As noted above, this mainly serves to prop up the self-esteem of NRIs.

It has become fashionable to compare India to China. This comparison seems extremely far-fetched. Chinese GDP per capita is more than five times higher, and is growing more than four-times faster than India’s in absolute terms. If India keeps growing at the recent high rate of 7.5% and China at a mere 6.3%, it will take India more than 135 years to catch up with China’s economic output in absolute terms.

People who have been concerned about the demonetization policy have repeatedly asked me if India is the next Venezuela. My response was “I wish it were.” On per capita basis, Venezuela’s GDP is more than seven times that of India. Venezuelans fight when they go hungry. Indians are too weak to even leave their homes. Indians should be fighting, particularly the poor, who have always got a very bad deal.

When India becomes the next Venezuela, which hopefully won’t take longer than three decades, one would actually have cause to celebrate.

Almost half of Indians have no choice but to defecate in the open. What looks like a simple problem has proved impossible for India’s government to solve. The government nevertheless wants to send probes to Mars and make India the first cashless economy. In due course, Modi will get swept away by India’s realities. The problem is that whoever succeeds him, will very likely be worse. A military general perhaps?

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