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.
A cunning plan unravels
Cartoon by Sandeep Adhwaryu
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.
Photo credit: PTI
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.
Photo credit: ISRO / DPA
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.
The terrible state of hygiene in India
Photo via indiaspend.com
I have yet to meet anyone in India — including anyone from the ranks of demonetization supporters — whose economic life has improved. People are still avoiding to go shopping. Businesses continue to fail. And food prices are still down by as much as 50% or more in many places, a sign that poor people are going hungry.
There are of course exceptions. Bureaucrats are now charging twice the usual bribe, to make up for losses they suffered due to demonetization. In the police state of India, the common man — still very proud of India’s achievements — is compliant.
India recently released its latest GDP growth numbers claiming that the country’s growth rate is still 7% on annualized basis. International economists are confused, as they had expected India to face a short-term setback due to the demonetization exercise.
The people on the street, simple folk like me, know better what is actually happening in India. India’s economy is not growing at 7%. It seems more likely that it has suffered negative growth of 20% annualized or more last quarter.
Not only are the growth numbers released by the corrupt Indian government cooked, but many businesses also converted their undeclared money into legal money in November 2016 by booking fake sales.
They paid months of salaries to their employees in advance and often prepaid bills years in advance while booking revenue for future sales. A lot of sales were back-dated and booked in cash.
All of these contortions increased GDP on paper exactly at a time when the entire economy was actually severely traumatized. India is not growing, it is regressing. India’s informal sector, which employs more than 80% of the population, is suffering the most.
Boosting happiness, Modi-style
Caretoon by Satish Acharya
China gets a lot of blame for allegedly cooking its statistics. I often go to China and consistently find it to be increasingly more open, more liberal, more investment-friendly and more growth-oriented. I see accumulation of capital and knowledge happening in that country.
At the same time, India is regressing to its medieval past. And this is not an exaggeration. This is happening not just economically, but most importantly culturally as well, as I have discussed at great length in earlier updates.
India is a democracy and many people are not happy to accept that it might be faring worse than China. In reality, India is so wretched that it is hilarious that people try to compare it with China. China’s economy is more than five times bigger than that of India.
There is massive confusion in the use of “growth” and “growth rate.” Even if India were growing at 7%, it would add only $120 to its per capita GDP of $1,718. If China grows by 6.8% (often erroneously referred to as “slowing”), it would add $561 to it’s per capita GDP. India is simply no match for China.
The often repeated statement of international organizations, media, economists and intellectuals that India is the fastest growing large economy fails to pass test of primary school mathematics.
Ultimately one must ask what India’s GDP of $1,718 per capita actually means. The reality is that a vast majority of India’s citizens goes to bed hungry every day. They often have no access to primary health care. They live in slums. Disease and tyranny are a daily part of their lives.
A common sight in towns and cities in India.
Photo credit: Jayant Bhandari
A great many Indians live a medieval lifestyle. On a per capita basis, Indians are poorer than Africans. On per capita basis India has more children exhibiting stunted growth than Africa has.
India’s problem is not a lack of tax collection. Its problem is a horrendous lack of productivity.
The sorry state of education in India. Forget about students, even the teachers are uneducated. The result is that Indians are completely unprepared for the modern economy.
Huge waves of young people are joining the workforce, with no hope of getting jobs. Job growth was stagnating in India even before the demonetization was announced. They are unskilled and very badly trained. Many so-called literates cannot even write their own names.
Among the jobs that have seen the largest growth in India in the past several years has been that of security guard. To anyone interested in sociology, this is not a sign of economic progress, but a symbol of a degrading society.
While the world is looking with trepidation toward the impending arrival of the age of robots, India finds itself at the precipice of a humanitarian crisis, made much worse by the simplistic and dictatorial policies of Narendra Modi.
Collateral damage: India’s poorest
Cartoon via rediff.com
Charts by: TradingEconomics
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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One Response to “India: Still the Fastest Growing Large Economy?”
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