India’s Currency Ban, Part VII

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.

Photo credit: The Hindu

 

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 There have also been hints that India’s income tax might be repealed.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?

Photo credit: Keystone / AP

 

Millennia of human progress in terms of economic transactions have been wiped out  overnight. People have been forced to go back to barter.

 

Demonetization Continues

More than 90% of the banned banknotes have reportedly already been deposited in banks. This is widely hailed as a victory of the government. As Mumbai-based economist Mithun B. Dutta explained in a note, the reality is the exact opposite. He argues that demonetization would only have made sense if a large part of the banned currency had never made it into bank deposits.

Up until recently,  the banned currency was selling for a 20% discount to its face value. Not only has this discount disappeared in recent days, but the remaining banned bills are now trading at premiums of up to 10%.

The poorest people lack the connections to deposit their cash and get it back out. The queues outside bank branch offices have continued and the mood is increasingly desperate. Businesses are closing, with many too damaged financially to be able to ever restart again. Poor people are losing their jobs.

Food prices are down by 25% to 50%, leaving farmers without the funds needed to support the next crop planting cycle. Shops remain empty, as discretionary spending is put on hold. Many businesses have suffered sharp declines in sales. Wheat sowing is said to be down sharply as well.

 

Who cares when one has problems of one’s own? This half-dead old woman serves as an example for more than 75% of India’s population. She cannot even write her own name, but is expected to learn to use plastic cards. For Modi she does not count if she isn’t paying taxes and isn’t part of the formal economy; but it is Modi who will eventually be thrown out.

 

Desperate poor people, whose pain is not reflected in any news or statistics.

Photo credit: Praveen Kumar/HT

 

Members of the salaried middle class, Modi’s biggest supporters, are slowly starting to face the pinch as well. When they went to their banks on  December 1, 2016 to collect part of their salaries, they had to rub shoulders with the poorest of the country, for whom they have deep-rooted disgust. And then they had to go back home empty-handed or with only part of the cash they had wanted to withdraw.

They are still hoping that their bank accounts will be unfrozen after the demonetization deadline on December 31 passes. They will soon realize that  their accounts will stay frozen, as simple math shows there is no other possibility. Modi will have to make a new announcement on December 31 to keep his social engineering project on track with yet another patch-up job, and to keep people’s hopes up.

 

There has been a significant surge in spontaneous outbreaks of violence across the country. Indian police are not sufficiently trained and lack the competence to keep a material increase in social unrest under control.

 

Conclusion

No one has explained yet how the currency demonetization policy will lead to less corruption. Most of the outstanding cash has already made it into bank accounts, but despite that, the queues at bank branch offices seem to be never-ending. It is the unbanked, the poorest people, who are most likely to have failed to deposit their currency and get their cash back out.

The government clearly has the intention of keeping bank accounts frozen after the official deadline of 31st December 2016. The economy will remain stalled at an enormous human cost. Modi is losing his control over his own party. He has isolated himself in a cocoon, surrounded by yes-men; but the middle class, which has so far considered itself to occupy the moral high ground, is starting to experience cash-related problems as well now.

At the same time, the political opposition is fragmented and weak. Modi probably cannot even imagine losing power, believing himself to be indispensable. If he sees his support dwindling, India could easily end up being pushed toward outright autocratic rule.

To properly understand all the undercurrents, it is best to consider first principles. India is an extraordinarily irrational, tribal and superstitious place. Despite the country’s long association with Britain, which by now has lasted over 300 years, it has failed to adopt the concept of reason. India and its institutions as they exist today were constructed by the British. It was inevitable that they would crumble, as India lacks the will and human capabilities needed to maintain them.

A society lacking in rationality cannot be expected to be able to differentiate between right and wrong. It cannot have respect for the individual, or develop moral instincts. Its people will be lacking in empathy and compassion, as demonstrated by the indifference of members of the middle class to the suffering of their desperately poor fellow citizens.

When such people are given western education, it merely sits in their minds as yet another belief system. Evidently, they don’t even understand that an ethical society cannot possibly be compatible with a government reneging on the contract that is printed on its currency.

Even poor people suffer in silence, or even worse, are fighting among themselves. They too lack the necessary understanding of moral principles to feel revulsion when they are mistreated. Instead of directing their anger at those responsible for their plight, they take out their frustrations on the nearest persons weaker than themselves.

With the passage of time, Indian institutions are necessarily mutating to accommodate India’s irrational culture. Culture cannot be changed through education alone, and changing it takes a very long time. India is likely to disintegrate at some point, fragmenting into tribal units or several smaller countries. Institutional decay has been underway for the past 70 years, but with Modi as a catalyst, its pace is picking up. The story of many countries in South Asia, the Middle East, Africa and large parts of South America is quite similar.

What should investors do? Ultimately India is likely to turn out to be a terrible investment destination. Indian savers should consider moving their wealth abroad. Indians are still permitted to transfer $250,000 per year, but eventually capital controls are bound to be instituted. Keeping in mind that Indian savers are already paying premiums of 30% or more to purchase US dollars or British pounds, there seems hardly a good reason for foreigners to send money to India.

 

Jayant Bhandari grew up in India. He advises institutional investors on investing in the junior mining industry. He writes on political, economic and cultural issues for several publications. He is a contributing editor of the Liberty magazine. He runs a yearly seminar in Vancouver titled Capitalism & Morality.

 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

2 Responses to “Modi’s Fantastic Promises”

  • martelhabermann:

    I have heard the term “Black Chaddi” being bandied about.

    This appears to be a portmanteau of “Black Swan” and “Chaddi”, which I believe means knickers in some Indian languages. Knee-length shorts are part of the dress code of the Indian right-wing organisation whose political wing is currently in power.

  • Bam_Man:

    India gets my vote for most likely big, fat Black Swan of 2017.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Gold – An Overview of Macroeconomic Price Drivers
      Fundamental Analysis of Gold As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold's extremely high stock-to-flow ratio and the main source of...
  • India – Is Kashmir Gone?
      Everything Gets Worse  (Part XII) -  Pakistan vs. India After 70 years of so-called independence, one has to be a professional victim not to look within oneself for the reasons for starvation, unnatural deaths, utter backwardness, drudgery, disease, and misery in India. Intellectual capital accumulated in the West over the last 2,500 years — available for free in real-time via the internet — can be downloaded by a passionate learner. In the age of modern technology, another mostly...
  • Cracks in Ponzi-Finance Land
      Retail Debt Debacles The retail sector has replaced the oil sector in a sense, and not in a good way. It is the sector that is most likely to see a large surge in bankruptcies this year. Junk bonds issued by retailers are performing dismally, and within the group the bonds of companies that were subject to leveraged buyouts by private equity firms seem to be doing the worst (a function of their outsized debt loads). Here is a chart showing the y-t-d performance of a number of these...
  • Pulling Levers to Steer the Machine
      Ticks on a Dog A brief comment on Fed chief Janet Yellen’s revealing speech at the University of Michigan. Bloomberg:   “Before, we had to press down on the gas pedal trying to give the economy all of the oomph that we possibly could,” Yellen said Monday in Ann Arbor, Michigan. The Fed is now trying to “give it some gas, but not so much that we’re pushing down hard on the accelerator.” […] “The appropriate stance of policy now is closer to, let me call it...
  • French Election – Bad Dream Intrusion
      The “Nightmare Option” The French presidential election was temporarily relegated to the back-pages following the US strike on Syria, but a few days ago, the Economist Magazine returned to the topic, noting that a potential “nightmare option” has suddenly come into view. In recent months certainty had increased that once the election moved into its second round, it would be plain sailing for whichever establishment candidate Ms. Le Pen was going to face. That certainty has been...
  • Mea Culpa – Precious Metals Supply and Demand
      Input Data Errors Dear Readers, I owe you an apology. I made a mistake. I am writing this letter in the first person, because I made the mistake. Let me explain what happened.   The wrong stuff went into the funnel in the upper left-hand corner...   I wrote software to calculate the gold basis and co-basis (and of course silver too). The app does not just calculate the near contract. It calculates the basis for many contracts out in the distance, so I can see the...
  • The Cost of a Trump Presidency
      Opportunity Cost Rears its Head Last Thursday’s wanton attack on a Syrian air field by the US and its bellicose actions toward North Korea have brought the real cost of candidate Trump’s landslide victory last November to the forefront.   It didn't take long for Donald Trump to drop his non-interventionist mask. The decision was likely driven by Machiavellian considerations with respect to domestic conditions, but that doesn't make it any better.   Unlike...
  • Heavily Armed Swamp Critters
      Worst Mistake GUALFIN, ARGENTINA – By our calculation, it took just 76 days for President Trump to get on board with the Clinton-Bush-Obama agenda. Now there can be no doubt where he’s headed. He’s gone Full Empire. Not that it was unexpected. But the speed with which the president abandoned his supporters and went over to the Deep State is breathtaking.     Once there was only a Trump fragrance called Empire... now he has gone full empire himself   Among the noise...
  • Hell To Pay
      Behind the Curve Economic nonsense comes a dime a dozen.  For example, Federal Reserve Chair Janet Yellen “think(s) we have a healthy economy now.”  She even told the University of Michigan’s Ford School of Public Policy so earlier this week.  Does she know what she’s talking about?   Somehow, this cartoon never gets old...   If you go by a partial subset of the ‘official’ government statistics, perhaps, it appears she does.  The unemployment...
  • Central Banks Have a $13 Trillion Problem
      Paycheck to Paycheck GUALFIN, ARGENTINA – The Dow was down 118 points on Wednesday. It should have been down a lot more. Of course, markets know more than we do. And maybe this market knows something that makes sense of these high prices. What we see are reasons to sell, not reasons to buy.   DJIA daily (incl. Thursday)... it was just taking a rest - click to enlarge.   Nearly half of all American families live “paycheck to paycheck,” say researchers. Without...
  • French Selection Ritual, Round Two
      Slightly Premature Victory Laps The nightmare of nightmares of the globalist elites and France's political establishment has been avoided: as the polls had indicated, Emmanuel Macron and Marine Le Pen are moving on to the run-off election; Jean-Luc Mélenchon's late surge in popularity did not suffice to make him a contender – it did however push the established Socialist Party deeper into the dustbin of history. That was very Trotskyist of him (we can already picture a future Weekly...
  • Trump Is An Insider Now
      Conspiracy of the Few GUALFIN, ARGENTINA – “U.S. stocks fall on Trump talk…” began a headline at Bloomberg. Or it may be Trump action. We had already counted six major campaign promises – including no O’care repeal and no “America First” foreign policy – already buried (some for the better).   A bunch of campaign promises get the MOAB treatment...  A great many  theories have been proposed to explain Trump's recent series of u-turns: 1. he is in thrall to...

Support Acting Man

Austrian Theory and Investment

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com