India: Still the Fastest Growing Large Economy?

by Jayant Bhandari, Acting Man:

India’s Currency Ban – Part X

It has now been four months since Narendra Modi declared about 86% of monetary value of currency illegal. Linked here is the last in my series of updates, which was written soon after the deadline to deposit the demonetized currency. Most of the banned currency was eventually deposited, making a mockery of Modi, who had claimed that unaccounted money would not reach the banks. Perhaps 3% of the cash never reached the banks.

Those living outside India still have the option to return to the country, complete a number of formalities at the airport, and then hope that India’s central bank, the Reserve Bank of India (RBI) will do the conversion.

Many of these people are unfortunately return empty-handed. In India, where stamps, signatures of bureaucrats, file-passing, attesting of documents, etc. go with everything, a lot of submitted paperwork is deemed incomplete by the RBI.

India’s narrow money supply M1 has collapsed from 28.42 trillion rupees in September of 2016 to just slightly above 20 trillion rupees in December. This makes recently reported GDP growth data (see further below) particularly dubious – click to enlarge.

Modi never intended to hurt Indians who are living abroad, but in the utter chaos of India, he can merely wave his magic wand and hope. India’s bureaucracy has a life of its own. The silver lining is that the chaos of India makes it impossible to establish an all-out Stalinist state.

Non-resident Indians who succeed in depositing their banned notes are complaining that the RBI is not crediting the cash to their account. The process of depositing is not easy to boot.

No Toilets, but Will Send Rockets Into Space

The worst losers were the poorest people of the country, who are lucky if they have a toilet. 50% of Indians still relieve themselves out in the open. Tribal people who never got to know about the ban, people who were too sick, or people who had forgotten their cash are now left with paper that can land them in prison. Modi has made ownership of more than ten of the banned bills illegal.

These hungry people have indeed been asked to celebrate that India has recently sent more than 100 satellites into space in a single launch, at a profit. People still have images of Sputnik in their minds when they think about satellites. What was not disclosed was that most of the satellites that India sent weighed no more than a few pounds.

Indian ISRO rockets taking off into space. Former British defense minister Gerald Howarth felt compelled to remark that “a country with its own space program does not need aid from us” after learning that the UK had sent around GBP 300 m. in aid to India in FY 2015.

People were also required to trust the government that the rocket was sent up at a profit. Politically correct international media happily accepted India’s claims. Of course no accounting had been disclosed. The question remains: How can you show the profitability of a small project of an organization that is totally dependent on public funds to stay up and running?

Indians have become extremely nationalistic. Independent thinking or challenging any facts that contradict good feelings about India are considered sacrilegious these days. With the exception of the tensions and the lack of even superficial unity that India’s huge ethnic diversity creates, India has all the makings of Pakistan, Afghanistan or Iraq.

Banks have become extended arms of the government. Nowadays one must explain cash withdrawals and deposits. Any cash transaction above Rs 300,000 (~US$4,500) has been made illegal in a country where most consumer transactions are in cash.

Income tax authorities have been given free reign to knock at one’s door without having probable cause to make such a visit. Modi is hiring more than 100,000 people to work for the tax department. In the last four months India has rapidly become a suffocating police state. Banks and ATMs still suffer from a shortage of cash. Queuing up at banks is a mandatory part of life in India.

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