India’s Currency Ban – Part IX
India’s Prime Minister Narendra Modi announced on 8th November 2016 that Rs 500 (~$7.50) and Rs 1,000 (~$15) banknotes would no longer be legal tender.
Sadly, the despondency visible in the old man’s facial expression has become a widespread phenomenon since the currency ban, particularly among India’s poor
Photo credit: Aayush Goel
Here are links to Part-I, Part-II, Part-III, Part-IV, Part-V, Part-VI, Part-VII, and Part-VIII, which not only provide updates on the demonetization saga, but explore and dissect India’s culture and why in this country of 1.34 billion — more than 1 out of every 6 human beings on the planet — so many exist in wretched poverty in this modern age, in an insect-like existence.
People storming a bank. If this is not an insect-like existence, what is it?
Oppression, exploitation, extreme stress, and the resulting millions of untimely deaths every year possibly make the story of the post-independent India one of the biggest crimes against humanity. Alas,it is getting worse.
As I explored in earlier updates, Indian institutions were designed to be run by the British. With them no longer at the helm, these institutions have mutated over the last 70 years to accommodate the underlying irrationality, tribalism, and superstitions of India. They have slowly but surely crumbled away, decaying and becoming degraded.
Indian democracy today is simply mob rule, its educational system little but propaganda, and its citizens are mere cogs in the service of the State. Indian institutions, including the Supreme Court, are far from independent. They are yes-men to India’s prime minister, the demagogue Narendra Modi.
India never properly assimilated the concepts of reason, liberty or individuality. When these concepts were offered by Europeans free of cost on a plate, Indians completely failed to take notice them. All they saw and copied was the facade of western lifestyle: clothing, music, cinema, food, etc.
Under Modi, India’s degradation has picked up pace. Today the country is a full-fledged banana republic. However, all of this had to happen eventually, with or without Modi. India is fated to disintegrate into tribal fiefdoms at some point. That is the direction it has embarked on.
All of this can be said to apply to almost every country in South Asia, the Middle East and Africa. What has slightly differentiated India — at least in the eyes of the international media, if not in reality — was the possibility of free speech at the margin.
India’s diversity — and the internal conflicts resulting from it — delayed the onset of full-fledged institutional totalitarianism. Alas, rising Hindu nationalism (Hindutava) is now rapidly weaving these heterogeneous groups of people into a totalitarian whole.
And now, India is rapidly losing one of the most important institutions introduced by the British: freedom of speech.
A scene from last December; if you want to go about exchanging or depositing your banknotes in Modi’s India, expect to be humiliated.
A writer should be interested in providing facts in as balanced a way as possible. He should be able to change his views as facts change and as his dispassionate understanding of the facts changes. I want to use this occasion to address some of the criticisms I have received over my articles on the currency ban.
When I wrote the first article on the subjet of demonetization immediately after the announcement, I was ridiculed for exaggerating. There was almost nothing about the event in the international press for many weeks thereafter. Very slowly it did get around to informing readers that all was not right with India. Bloomberg, Forbes, et al. eventually came out with scathing articles.
After two months, the IMF reduced its GDP growth forecast for India, from 7.6% to 6.6%. I disagree with this figure. Everywhere I look, I find the economy suffering and/or stagnating: businesses failing, people going bankrupt, and a large section of society going into economic seizure. From what I have seen, growth is probably negative. I expect GDP to fall. The IMF will very likely have to revisit its numbers.
India’s mainstream press has been mostly silent — most are puppets of Modi these days. There has been virtually no reporting from the rural and tribal areas, where 75% of India’s citizens live. There is hardly any information on what is happening in smaller towns.
I have written eight updates, while traveling in India and investigating the situation. Based on all I have seen and discussed, the situation is a lot grimmer than mainstream media reports suggest.
Do I detest Modi? Yes, I do. Do I work for any other political parties? No, I do not. Neither of these matter, for the real fountainhead of India’s problems is not politics. Politics is merely a symptom of the extremely corrupt, irrational, and tribal culture of India.
Do I exaggerate when I call India a banana republic that is increasingly turning into a police state? Do I exaggerate when I call it a fascist state? Not at all. Once again, in due course the reality will assert itself sufficiently that the international media will have no choice but to catch up with it.
Indian cinema halls play the national anthem before the start of every movie. In the past I have remained sitting, suppressing my revulsion while watching people standing up in dutiful obeisance. Recently the Supreme Court ruled though that everybody must stand up. I can now be arrested for treason if I remain sitting.
When I recently went to watch a new release, Dangal, I timed my entry so as to arrive in the cinema after the anthem had ended. I had no luck. They included the anthem in the movie as well, as part of the story. When it started playing, people anxiously started looking around, unsure whether to stand up or not. Slowly but surely, everyone stood up.
If watching this does not make one feel like puking, one’s gag reflex is probably not in working order (i.e., it is time to let a doctor examine the chemo-receptor trigger zone located in the fourth brain ventricle). First principles tell me that India is in an advanced stage of becoming a police state.
Do I write so negatively about India in order to earn brownie points from Westerners? Hardly. The West is so firmly in the grip of political correctness today, that most Westerners dislike me for saying what I do. I have no hope to ever get a job in a “normal” western organization. However, a writer’s task is to write what he sees, not what he thinks may please his audience.
The reality of India (and many similar countries) must be understood for the sake of their wretched poor people. How can one be of any use if one doesn’t properly understand their problems? A faulty understanding of these societies has resulted in Europe suffering a migrant crisis. The West must understand for its own sake how deeply entrenched cultural traits are.
Neither the West nor the rest of the world has the luxury to sugar-coat reality. There is indeed a lot of fake news around, but the worst of it emanates from governments and their despicable cronies in the mainstream media.
How many of these people never made it into the bank to deposit or exchange their cash?
30th December 2016: The Last Day to Deposit Banned Banknotes
Modi issued 70 official notices announcing changes to his original demonetization plan. Ultimately, people were required to deposit all the banned banknotes in their possession at a bank branch office by 30th December. By this date about 97% of the banned currency had in fact been deposited. The banned banknotes were used openly until the very last day. These notes were funneled to the banks using the most effective channels.
Interestingly, over the last five weeks before the deadline, it was possible in parts of India to sell the banned banknotes at a premium. The reason was that many companies belatedly realized that while they had force-fed the banned notes to their workers and suppliers in earlier days, legally they should not have done so.
If they had a cash balance in their balance sheet on 31st October 2016, they were supposed to deposit the banned banknotes in a bank pursuant to the law on the currency ban. This meant that if one had bags full of banned currency, one could suddenly sell them at a premium – which made an utter mockery of the entire demonetization exercise. Ironically, Modi expected that many of these notes would never make it back to the banks.
Who were the people who failed to deposit their banknotes? For one thing, the Indian government made no provision to enable those holding banned notes outside of India to deposit them. Tens of millions of people of Indian origin who kept some Indian cash for their future visits to India, were unable to deposit their banknotes.
Many tribal people and people who simply didn’t get the information on demonetization, or those who were too sick, old or disabled, and/or could not afford to stand in queues, failed to deposit their cash as well. While only 3% of the total amount of banned notes was affected in the end, it was all that millions of desperately poor Indians had.
With most of the currency deposited, the demonetization exercise ultimately was an utter failure. The corrupt and rich lost nothing. But it created havoc with the lives of hundreds of millions, it killed more than 150 people in queues alone, and destroyed the economy to boot. As you continue reading this and watch the videos, pay attention to the wretched poor and look at their faces.
The poorest segment of society has suffered the most. This old man did not receive the information on demonetization in time and is being told about it in the new year. He is now left with toilet paper.
On New Year’s Eve, all bars, night clubs, etc. stopped everything to run a lengthy speech by Modi. People were expecting him to provide some clarification on what would happen next and when liquidity would be restored. Instead, he spent the entire time rambling about irrelevant issues. These included offers of a few crumbs of free money to poor people, pregnant women and the middle class — which are highly unlikely to actually materialize.
A scene from the last week of December. Indians have no history of rebelling. Lacking reason and moral instincts, they simply adjust to their predicament. They accept being abused or raped, believing it is their destiny. I have serious doubts that they feel violated when they are raped. But when given a stick and a uniform, they consider themselves omnipotent, forever eager to abuse their fellow citizens.
The New Year
Modi had promised that full liquidity would be restored by the end of 2016. This did not happen. The queues outside of bank branch offices have continued. Both ATMs and banks lack cash and if you can get any, there is an upper limit on how much you can get. Banks mostly offer only a part of this upper limit.
Banks have now become extended arms of the tax department. Most decent people are afraid of going to bank branch offices these days, as they are interrogated every time they make a visit. They must explain why they are depositing certain checks, why they are moving money electronically between their own accounts, why they are investing in certain stocks, etc.
Indian banks were overburdened and understaffed even for regular work. Now forced to police their customers on behalf of the government, bureaucracy has gone through the roof. As I pointed out in an article in 2015 on the deterioration of the relationship between private companies and their customers, Indian private banks inter alia make regular, unauthorised deductions from the accounts of their clients.
Most Indians lack smart-phones and internet connections. E-transactions have become a massive burden, not only for poor, illiterate people, but even for the well-educated. Transactions are proving extremely error-prone and clients must now wait for hours trying to get customer support representatives to effect appropriate refunds. Most people simply give up after a while.
India’s attempt to go cashless will be an utter disaster. But there is still a lot of pain to come before India inevitably reverts back to a cash economy.
In the first week of January 2017, the sign on the door of this bank branch office says that it has no cash. Pensioners are waiting outside in utter cold, hoping that some cash might still arrive.
The Real Pain is Just Beginning
India has witnessed long queues everywhere over the past two months. People were desperate to convert their banned banknotes. Those who did not have a bank account — i.e., 50% of the population — had to use someone else do this conversion for them, mostly for a commission.
Many never got to know about the ban. Many were too sick or too disabled to visit a bank branch office within the given time. The rich and those with bags full of cash in the end had no problems with the conversion. Some of them even managed to sell their banned notes at a premium.
India’s GDP per capita is USD 1.718. India has the highest number of poor, malnourished, and illiterate people in the world. These people are now expected to use smart-phones to make payments and earn their living. This is not going to happen.
About 32.7% of India’s citizens are extremely poor. They go to bed hungry. Only about 17% of Indians own smart-phones. Half the population has no bank account. Even when available, electricity and internet connections are highly unreliable.
India’s experiment with going cashless will be an utter failure. All the factors mentioned above have caused a lot of pain. Possibly the worst though is the fatal blow that demonetization has delivered to the economy. Every industry is suffering.
All sectors of the economy are reporting declines in business ranging from 20% to 80%. This has had a cascading affect on everything. The entire economy is stagnating or shrinking. India’s government is still expecting GDP growth of 7.1%. What one sees instead is negative growth everywhere, and it seems set to continue.
It is conventional wisdom that people will always eat and go to hospitals, even in a bad economy. Today, hospitals in India are empty and vegetable prices are down by as much as 50% or more. Farmers are dumping their produce in the streets or throwing it away. One must wonder what poor people are eating these days. They are even delaying medical treatment. Any expense people can avoid making is being postponed. Car and property sales are down drastically. People are being laid off across the economy. While the poorest of the poor have naturally suffered the most, even the hitherto non-empathetic middle class will soon start to feel the pain (read earlier updates for more details on this point).
Some farmers are destroying their crops, as they simply cannot afford paying for the harvest and transportation.
In this extremely poor country, in which the majority battles daily to get enough to eat, farmers are now giving food away for free. This raises important questions though: Will farmers actually produce for the next harvest? Can they even afford to plant a new crop? Is a famine coming next?
Advice to Indians
Indians are generally a very resilient lot. They adjust their lives to changing circumstances. Given their irrationality, many of them often fail to blame the true culprits, but instead take their anger out on the next weaker persons. Men take their anger out on women, women on children, children on animals, and animals bite anyone they come across.
In such an entangled situation, even otherwise rational people can lose their understanding of who started all of this. Indian “resilience” doesn’t come from a deeper spirituality, but rather from an utter lack thereof.
Even before the demonetization exercise, India’s economy was suffering. Despite their arrogance, Indians are often unskilled, untrained, and unfit to function in the international community. To this depressed and stressed out, but mostly numb society, Modi has added plenty of poison.
India’s economy has in reality always been negative-yielding. It has become even more negative-yielding now. The currency and the stock market are vastly overvalued. India received the free gift of western technology, plenty of easy money from naive fund managers sitting in Western capitals and cheap oil — all of which are reversing direction.
Investment in the formal system has no chance of generating a satisfactory return. Indians should move their savings out of India while they still can — it is still possible to buy gold or open bank accounts in safer and more reliable jurisdictions outside of India. Keep in mind that capital controls will likely be imposed soon. Those who still have the opportunity and the necessary skills should move out of 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.
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