RBI’s Rajan Warned Modi About “Short-Term Costs” Of Demonitization

In what’s likely to be remembered as one of the most spectacular policy failures in recent Indian history, Prime Minister Narendra Modi’s decision to abruptly cancel high-denomination banknotes – a move meant to punish corrupt officials and criminals – instead destroyed the savings of middle- and low-income Indians and caused widespread chaos in the country’s financial system.
And now, less than a year since the ‘war on cash’ was announced, prominent former government officials are speaking out and placing the blame for the policy squarely on Modi’s shoulders, including former Reserve Bank of India governor Raghuram Rajan, who told the Times of India that he had cautioned the government that the short-term costs of demonetization would outweigh the long-term benefits, and suggested “alternatives” to achieve the goal of stamping out black money.
When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals – popularly believed to hoard large sums of illicit cash – would be stuck with ‘worthless pieces of paper’. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a windfall for India’s government. Meanwhile, ordinary Indians would opt to keep more of their money in electronic deposits at their bank, helping to shore up the country’s financial system.

This post was published at Zero Hedge on Sep 4, 2017.

Modi’s Demonetization Called “Colossal Failure That Ruined Economy” As India GDP Growth Slumps To 2-Year Lows

India’s embattled Prime Minister Narendra Modi faced a double whammy of abuse this week as his nation’s economic growth collapsed to its weakest since Q1 2014 and India’s Central Bank released a report on Modi’s extraordinary “demonitization” plan last year showing that 99 per cent of the high denomination banknotes cancelled last year were deposited or exchanged for new currency, crushing Modi’s lie that his contentious ‘war on cash’ would wipe out huge amounts of so-called ‘black money’.
When Modi announced in November that Rs1,000 ($16) and Rs500 notes would no longer be legal tender, he suggested that corrupt officials, businessmen and criminals – popularly believed to hoard large amounts of illicit cash – would be stuck with ‘worthless pieces of paper’. At the time, government officials had suggested that as much as one-third of India’s outstanding currency would be purged from the economy – as the wealthy abandoned or destroyed it, rather than admit to their hoardings – reducing central bank liabilities and creating a government windfall.

This post was published at Zero Hedge on Sep 2, 2017.

Modi’s Demonetization Is a Cure Worse Than the Disease

Next Tuesday will mark four weeks since Indian Prime Minister Narendra Modi made his surprise demonetization announcement that has sent shockwaves throughout the South Asian country’s economy. In an effort to combat corruption, tax evasion and counterfeiting, all 500 and 1,000 rupee banknotes are no longer recognized as legal tender.
I’ve previously written about the possible ramifications of the ‘war on cash,’ which is strengthening all over the globe, even here in the U. S. Many policymakers, including former Treasury Secretary Larry Summers, are in favor of axing the $100 bill. In May, the European Central Bank (ECB) said it would stop printing the 500 euro note, though it will still be recognized as legal currency. The decision to scrap the ‘Bin Laden’ banknote, as it’s sometimes called, hinged on its association with money laundering and terror financing.
Electronic payment systems are convenient, fast and easy, but when a government imposes this decision on you, your economic liberty is debased. In a purely electronic system, every financial transaction is not only charged a fee but can also be tracked and monitored. Taxes can’t be levied on emergency cash that’s buried in the backyard. Central banks could drop rates below zero, essentially forcing you to spend your money or else watch it rapidly lose value.
Inevitably, low-income and rural households have been hardest hit by Modi’s currency reform. Barter economies have reportedly sprung up in many towns and villages. Banks have limited the amount that can be withdrawn. Scores of weddings have been called off. Indian stocks plunged below their 200-day moving average.
Demonetization has also weighed heavily on the country’s manufacturing sector. The Nikkei India Manufacturing PMI fell to 52.3 in November from October’s 54.4. Although still in expansion mode, manufacturing production growth slowed, possibly signaling further erosion in the coming months.

This post was published at GoldSeek on 2 December 2016.

Truck Drivers Walk Off the Job, ATMs Run Dry After India Pulls Bills From Circulation

The crisis sparked by the shortage of cash in India following Prime Minister Narendra Modi’s anti-graft measure to ban high-value currency bills has hit the movement of goods in Asia’s third-largest economy.
More than half of an estimated 9.3 million trucks under the All-India Motor Transport Congress have been affected as drivers abandon vehicles midway into their trip after running out of cash, according to Naveen Gupta, secretary general of the group. India’s roads carry about 65 percent of the country’s freight.
That adds to the worries of a government battling to keep cash-dispensing machines running after efforts to ease withdrawals failed to keep pace for the fifth straight day.
After a teary-eyed emotional appeal to citizens to bear some pain and back the fight against corruption, Modi today defended his move to withdraw 500-rupee and 1,000-rupee notes, which accounted for 86 percent of money in circulation.

This post was published at bloomberg

India’s War on Cash and the Poor

Last week, India’s Prime Minister Narendra Modi banned from circulation the country’s two largest denomination banknotes, of 500 rupees ($7.50) and 1000 rupees ($15). The shocking move – kept secret and set to take place overnight – was intended to flush out the cash hoardings of black market participants and stop the corruption currently permeating all levels of business and government in India. The two banknotes, rumoured to account for almost 80% of the cash in circulation, were used primarily to avoid paying taxes and to pay bribes.
However, the rupee ban has managed only to create chaos and desperation for millions of Indian citizens. They were left with no money to buy basic amenities, and saw their dearly earned savings being wiped out overnight. They queued in front of the banks and rushed to their ATMs, scrambling to exchange the worthless banknotes in the brief window of opportunity provided. Both banks and ATMs ran out of money, as India’s printing presses rushed to keep up by printing new lower-denomination currency.
But many Indians are so sick of corruption that they are willing, albeit grudgingly, to bear these hardships if the move should end it. They don’t know that it won’t: the move did little more than temporarily inconvenience the large money launderers and tax evaders, who have already found loopholes allowing them to profit from and minimize the effects of the government’s move – and that is a good thing.

This post was published at Ludwig von Mises Institute on November 13, 2016.

War On Cash Strikes India: PM Scraps Large Bills, Limits ATM Withdrawals To “Fight Corruption”

In Pics: New Rs 2000 Note that will be issued pic.twitter.com/4NXhNOpxxA
— ANI (@ANI_news) November 8, 2016

In a fiery address to the Indian nation, PM Narendra Modi just took a major step in the war on cash that is being waged worldwide. Talking tough on fighting corruption and the black market economy, Modi decreed that the INR500 ($7.50), and INR1000 ($15) bills will no longer be legal tender and that ATM withdrawals will be limited to INR2000 ($30) for some.
“Fake money and terrorism are ruining the nation’s fabric,” Modi exclaimed, adding that “it was very important to keep this news under wrap. Due to this, RBI and post office have a major task ahead and RBI has also decided that all banks will be shut for the public on November 9.”
“Honest man cannot buy a house, cannot get proper education due to black money.”
“Cash economy aides black money, corruption and makes life difficult for the poor.”

This post was published at Zero Hedge on Nov 8, 2016.

What’s India Got Over China? Plenty. — Gary Shilling

When Narendra Modi, the prime minister of India, speaks to a joint session of the U.S. Congress on June 8, he may find it hard to convince lawmakers of his country’s promise. He shouldn’t: As China, Russia and Brazil slow down, India is barreling ahead. It’s one of the brighter spots among all the emerging markets.
True, India’s economic growth in the last 25 years has been slower than China’s. India’s growth rose to almost 11 percent of U.S. gross domestic product in 2014 from about 4 percent in 1990, while China’s vaulted to 60 percent from 9 percent in the same period. But unlike China, India never became an export-driven manufacturing juggernaut and so its growth has been steadier. Last year it was 7.5 percent.
India also didn’t benefit as much as China when manufacturing shifted from the West to developing countries, and thus the decline in offshoring is hurting India less than China.
India certainly has its problems — notoriously slow bureaucracies, a lack of good infrastructure, and too much regulation and corruption to name a few — that need to be addressed before economic growth can explode. Modi has sought reforms for many of these issues, though with limited success so far.

This post was published at bloomberg

Military Misadventures

No Coincidence
BALTIMORE – The Dow rose 126 points on Thursday – just shy of 1%. Not enough to reverse the market’s apparent downward bias [ed note: the rebound gathered pace on Friday].
Stocks are most likely headed down because the thing that sent them up has come to an end. Here is a chart that tells the tale:
As you can see, over the last six years or so, gains for the S&P 500 have closely tracked the ballooning of the Fed’s balance sheet under QE. After shelling out almost $4 trillion on bonds, the Fed’s QE is on pause. And stocks are struggling. Coincidence? We don’t think so.
Deep State Cronies in Action
We stuffed a few copies of the Hindustan Times in our bag before boarding the plane back from Mumbai. On the front page, French president Francois Hollande is receiving an awkward hug from India’s top man, Narendra Modi.
Over in the entertainment section is another note of interest. Actress Julie Gayet has put together a film production company. And lucky for her – she has backing from one of India’s biggest conglomerates, the Reliance group.
Nowhere does the paper mention that Ms. Gayet is Mr. Hollande’s main squeeze. She is the woman for whom he snuck away on a motor scooter from the presidential palace, where he lived with his then First Girlfriend, journalist Valerie Trierweiler.
Reliance is owned by the Ambani family, which lives in Mumbai in the most expensive house ever built. It is 60-story skyscraper, put up at a cost of $1 billion, which now takes a staff of 600 to keep the furniture dusted. On Sunday, the two events were reported. On Monday, the paper added the connective tissue. It announced that India and France had inked ‘$15 billion in business deals.’

This post was published at Acting-Man on February 1, 2016.

No India Growth Miracle – Just The Same Ol’ Deficit Financed Public Sector Pork Barrel

With funds running short to sustain an infrastructure spending spree that’s underpinning India’s economic growth, Finance Minister Arun Jaitley will step up pressure on state-run companies to pick up the slack.
Jaitley plans to meet public-sector companies in November – two months earlier than usual – to urge them to pay higher dividends if they don’t invest more, according to two people familiar with the discussions. The dividends will go to the government, which is the majority shareholder in companies like Coal India Ltd., the world’s largest producer of the fuel.
‘Public investment is pretty much the only thing that’s propping up growth right now,’ said Jyotinder Kaur, an economist with HDFC Bank Ltd. near New Delhi. It’s crucial for public sector companies and state governments to keep up the momentum, she said.
Prime Minister Narendra Modi is seeking to bolster growth that remains below potential even while outpacing other emerging markets reeling from China’s slowdown. Yet weak tax revenues, higher spending and lackluster returns from state asset sales are making it harder for him to invest while still narrowing the budget deficit to an eight-year low.

This post was published at David Stockmans Contra Corner on October 26, 2015.