India's Demonetization Disaster: Modi Likens Critics to Pakistan

Indian Prime Minister Narendra Modi has accused his critics of his demonetization decision of “brazenly standing in support of the corrupt and the dishonest” and equated their criticism with the “firing at the borders by Pakistan in a bid to provide cover to infiltrators”,  according to the Indian media reports.

Diverting Attention:

Modi's attempt to use Pakistan to divert his people's attention from India's internal problems is not new. In fact, it's part of a pattern that seems to work in India. But why is it? What makes so many Indians so gullible? To answer this question, let us look at the following quote from Indian writer Yoginder Sikand's book "Beyond the Border":

"When I was only four years old and we were living in Calcutta (in 1971)...it was clear that "Pakistan" was something that I was meant to hate and fear, though I had not the faintest idea where and what that dreaded monster (Pakistan) was. What I heard and read about the two countries (India and Pakistan)--at school, on television and over radio, in the newspapers and from relatives and friends--only served to reinforce negative images of Pakistan, a country inhabited by people I necessarily had dread and even to define myself against. Pakistan and Muslim were equated as one while India and the Hindus were treated as synonymous. The two countries, as well as the two communities were said to be absolutely irreconcilable. To be Indian necessarily meant, it seemed to be uncompromisingly anti-Pakistani. To question this assumption, to entertain any thought other than the standard line about Pakistan and its people, was tantamount to treason."

Having been brought up with the misguided notion that Pakistan is evil incarnate, it seems that a large plurality of Indians viscerally hate Pakistan, and also hate anything that is likened to their western neighbor.

Such tactics may serve the politicians well but they do not solve India's long-standing problems that have put Indians among the most deprived people with the world's largest population of poor, hungry and illiterates.

Modi's hasty demonetization decision is also indicative of the rash decision-making by India's Hindu Nationalist leader. It's dangerous for stability in South Asia.

Demonetization Debacle:

Mr. Modi's blunder in hasty demonetization of large Indian currency notes has brought untold suffering to the people of India. The instant removal of 85% of cash from circulation in a cash-based economy has been harshly criticized almost universally by experts around the world.

Morgan Stanley’s Ruchir Sharma has said it's Mr. Modi’s “clumsy exercise of state power” and it won’t achieve its ostensible aim—cracking down on so-called “black money” salted away by tax dodgers, according to Sadanad Dhume's op ed in Wall Street Journal.

Kaushik Basu, a former chief economic advisor to the government of India and former chief economist at the World Bank, has called it “poorly designed, with scant attention paid to the laws of the market.”

Forbes magazine's Steve Forbes has called Modi's demonetization decision "sickening and immoral". Wall Street Journal's editorial page has described it as "India's bizarre war on cash".

Here's an excerpt of how the Economist magazine describes the effects of Modi's "botched" demonetization decision on life and economy of the nation:

"Cash is used for 98% by volume of all consumer transactions in India. With factories idle, small shops struggling and a shortage of cash to pay farmers for their produce, the economy is stuttering. There are reports that sales of farm staples have fallen by half and those of consumer durables by 70%. Guesses at the effect on national output vary wildly, but the rupee withdrawal could shave two percentage points off annual GDP growth (running at 7.1% in the three months to September)".

Summary:

Prime Minister Narendra Modi's hasty demonetization decision has exposed his rash decision-making style. It has already caused untold suffering for ordinary Indians. Mr. Modi's decision processes have also raised serious questions about the formulation of Hindu Nationalists' Pakistan policy.  Fears of miscalculation by Mr. Modi's inner circle about Pakistan's response to any major provocation could result in serious consequences for the entire region.

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Comment by Riaz Haq on February 1, 2017 at 2:37pm

economy not in good shape: Ex PM Manmohan Singh. via

A day before presentation of Economic Survey, former Prime Minister Manmohan Singh on Monday painted a bleak picture of the Indian economy insisting "it is not in good shape" while former Finance Minister P Chidambaram said the government is "hiding behind" GDP numbers that are being challenged.

Releasing the "Real State of Economy 2017", a document prepared by the Congress research cell at the party headquarters here, Singh said it speaks about the state of India's economy, its many issues and where it is heading.

"That the Indian economy is not in a good state is obvious. Even IMF has downgraded our GDP growth and it will not be 7.6 per cent but less than 6.6 per cent," he said.


Chidambaram said the state of the economy "is not something that we can be happy about" and expressed concern over the low credit growth which he claimed is at 5 per cent, the "lowest in several decades".

"BJP is hiding behind a GDP number which is being challenged. People are not dazzled by it, but are asking where are the jobs? "NDA government tends to believe exaggerated version of economy, this research document is closer to truth than what government will say tomorrow," he said.

Chidambaram said every government must be optimistic, but optimism must stem from a realistic assessment of situation. "Yet, if government presents tomorrow a rosy picture of the economy, people of India are entitled to question that.

There are no jobs, capital formation is declining, credit growth is the lowest in several decades," he said. Chidambaram wanted government to focus on fiscal consolidation and said, "there are serious question marks on this government's ability to follow fiscal prudence".

He dismissed suggestions that the 2008 farm loan waiver was a populist measure, saying, "It was based on the response to a demand from the farming community and was a very wise decision."

"This was especially so as the international financial crisis hit in September 2008, which crippled even major economies but did not affect India much," he said.

He claimed that while there are no jobs, new capital investment and no credit growth, the document released "candidly, truthfully" assesses the state of India's economy, supported by hard research and data.


Hoping that government will not cut social sector spending, the former Finance Minister claimed that the MNREGS was the lone scheme that provided some succour to poor by way of jobs.

"There is a 60 per cent spurt in demand for MNREGS jobs. If they are cut, then it would be a very cruel cut. This demand is because of loss of jobs and. I sincerely hope that this government will not make this cardinal mistake of cutting expenditure," he said.


Congress spokesperson Rajiv Gowda said, "The slowdown in the Indian economy in the wake of demonetisation will last four to five years." He told the government that it should not use the issue of universal basic income tax an excuse to attack social safety net.

Comment by Riaz Haq on February 27, 2017 at 10:43am

More layoffs likely as #India's #manufacturing sales shrink. #Modi #Demonetization #MakeInIndia http://ecoti.in/H8qyXb via @economictimes http://economictimes.indiatimes.com/news/economy/policy/more-layoff... Despite the government's efforts to attract investment under its Make in India campaign, sales of manufactured goods fell 3.7 per cent during 2015-16 -- the first decline in seven years --sparking fears of layoffs and debt default in the months to come. Spurred by a global slowdown and lack of demand, sales of manufactured goods were falling even before demonetisation, affecting sectors ranging from textiles to leather to steel. ------ A range of factors including falling investment, increased input costs and higher import duties have caused demand for manufactured goods to fall, a trend that was visible before demonetisation and has strengthened since. While the services sector grew by 4.9 per cent in 2015-16, faster than the 3.7 per cent recorded in the previous financial year, manufacturing contracted for the first time in seven years, from a growth rate of 12.9 per cent in 2009-10 to -3.7 per cent in 2015-16, ..

Comment by Riaz Haq on March 2, 2017 at 10:51am


Off balance: #India’s twin balance-sheet problem. Credit slump amid rising non-performing loans. http://www.economist.com/news/finance-and-economics/21717988-fast-g... … via @TheEconomist

IF INDIA is indeed the world’s fastest-growing big economy, as its government once again claimed this week, no one told its bankers and business leaders. In a nation of 1.3bn steadily growing at around 7% a year, the mood in corner offices ought to be jubilant. Instead, firms are busy cutting back investment as if mired in recession. Bank lending to industry, growth in which once reached 30% a year, is shrinking for the first time in over two decades (see chart). If this is world-beating growth, what might a slowdown look like?


India’s macroeconomy chugs along (though the quality of government statistics remains questionable), but its corporate sector is ailing. The sudden and chaotic “demonetisation” of 86% of bank notes in November hardly helped. But the origins of India’s troubles go much deeper. After India dodged the worst of the financial crisis a decade ago, a flurry of investment was made on over-optimistic assumptions. Banks have been in denial about the ability of some of their near-bankrupt borrowers to repay them. The result is that the balance-sheets of both banks and much of the corporate sector are in parlous states.

After years of burying their heads in the sand, India’s authorities now worry that its “twin balance-sheet” problem will soon imperil the wider economy. Both the Reserve Bank of India (RBI) and the government have nagged banks to deal with their festering bad loans. Around $191bn-worth, or 16.6% of the entire banking system, is now “non-performing”, according to economists at Yes Bank. That number is still swelling.

Given the linkages between them, companies and banks often run into trouble concurrently. But countries where banks’ balance-sheets resemble Swiss cheese usually have no choice but to deal with the issue promptly, lest a panicked public start queuing up at ATMs. India is different. State-owned lenders make up around 70% of the system, and nobody thinks the government will let them go bust. As a result, what for most economies would be an acute crisis is in India a chronic malaise.

That doesn’t make it any less painful. Investment is a key component of GDP, and it is now shrinking, thanks to parsimonious firms. India runs a trade deficit and the government is seeking to cut its budget shortfall, which leaves consumption as the sole engine of economic growth. Indeed, until demonetisation, consumer credit was booming, up by about 20% year on year. Some may wonder whether those are tomorrow’s bad loans, or when consumers will run out of stuff to buy.

Meanwhile, banks’ profits are sagging, even without the impact of fully accounting for dud loans. State-owned lenders collectively are making negative returns. Thirteen of them are described in a recent finance-ministry report as “severely stressed”. Demonetisation did indeed bring in lots of fresh deposits, but the bankers were then browbeaten into slashing the rates at which they lend, further denting their margins.

The dearth of investment is in part due to a lack of animal spirits. Sales outside the oil and metals sector are up by a mere 5% year on year, compared with nearer 25% at the start of the decade. Capacity utilisation, at 72.4%, is low by historical standards: even if money were available, it is not clear many would want to borrow.

Bankers, companies and policymakers once hoped the twin balance-sheet problem would eventually solve itself. Everyone’s incentive has been to look away and hope economic growth cures all ills. It has not: profits are in fact shrinking at the large borrowers, many of them in the infrastructure, mining, power and telecoms sectors. But banks have cut credit across the board, including to small businesses.

Fixing this is not easy. Much of the hard work repairing corporate balance-sheets needs to be done by public-sector bank bosses, who should (yet seldom do) restructure and partly forgive loans. Many of them inherited the problems. Most defaulting tycoons are politically connected, which is how some got the loan to start with. Accepting that they cannot pay it back, and waiving part of the debt, might be seen as abetting crony capitalists. This can attract the attention of the many zealous agencies probing public spending.

So it is far easier for a banker to make no decision—which often means having to extend further loans to keep the borrower afloat—and pretend all is well. It hardly helps that one former bank boss is languishing in jail while authorities probe a loan to Kingfisher Airlines, whose former boss is skulking in a mansion in Britain.

Writing off loans would be easier if banks could foreclose on companies, and take equity in them instead. Many potential investors are eager to work with banks to recapitalise good companies with bad balance-sheets. But without a proper bankruptcy code, which is only now coming into force and will take years to become effective, that is a fool’s errand.

If banks help fix corporate balance-sheets, the large resulting losses will highlight how weak their own capital positions are. The government has promised to inject more money in the banks, but has put in only a small fraction of the $90bn Fitch, a ratings agency, argues they need to get onto an even keel. Nor will it countenance having less than a majority stake in the state-owned banks, limiting their ability to raise funds from private investors.

One way to break the logjam would be to set up a “bad bank” that would take the dodgiest loans off banks’ balance-sheets, leaving them free to focus on making new loans. Viral Acharya, a new deputy governor at the RBI, recently proposed ways to facilitate the transfer of non-performing loans off banks’ balance-sheets—essentially, giving cover to bankers who cut sensible deals. The government’s chief economic adviser, Arvind Subramanian, has suggested a bad bank run by the private sector.

Problematic as it is, at least the Indian banking sector is relatively small compared with the size of the overall economy, and its bad debts are concentrated. A database put together by Ashish Gupta at Credit Suisse, a bank, shows that over $100bn of the dud loans lie with just ten borrowers. That should simplify the co-ordination of any deal, even if the loans are spread across many banks.

However, the crucial element in deciding who bears the losses—setting the price at which the bad bank would buy the assets—is fiendishly difficult. What price a loan secured against a half-built bridge in Gujarat? Lots of people would have to make decisions they have expertly dodged for years. Worse, federal elections are due in 2019, and setting up bad banks takes time. Bailing out banks and tycoons would not play well at the polls. The temptation will be to give it more time—and pay a yet higher bill later.

Comment by Riaz Haq on March 19, 2017 at 9:41pm

#Indian states on a borrowing binge are an unlikely competitor for #Modi and bonds. Rates rising. https://www.bloomberg.com/news/articles/2017-03-15/states-on-borrow... … via @business

Prime Minister Narendra Modi’s government is finding itself pitted against an unlikely competitor as it pursues bond investors to finance the budget deficit: Indian states.

With an ever-rising supply of debt that offers yields higher than sovereign notes, borrowing by state administrations threatens to overshadow that by the federal government, according to Edelweiss Asset Management Ltd. and HDFC Standard Life Insurance Co. That complicates matters for Modi, whose promise of fiscal discipline has lured foreigners to local bonds after a four-month hiatus.

Increased competition from states is also bad news for the sovereign-debt market, which saw benchmark notes in February post their biggest monthly loss since 2013, after policy makers in Asia’s third-largest economy signaled an end the monetary easing cycle. There is also a growing risk that, unless state deficits are pared, their debt levels could quickly get on to “an explosive path,” JPMorgan Chase & Co. said in a February report.

“There’s an increasing amount of concern over the states’ bond supply and the time when it will overtake government bond supply is not far away,” said Dhawal Dalal, chief investment officer for debt at Edelweiss Asset. “Concern about the health of the states is also something that worries market participants.”

Working together, India’s 29 states combined would form a bloc that has a bigger economy than the whole of sub-Saharan Africa, more members than the European Union, and twice the population of North America. Net borrowing by states will rise 12 percent to 3.8 trillion rupees ($58 billion) in the next financial year, after an estimated 30 percent-surge to 3.4 trillion in the fiscal year ending this March 31, according to ICRA Ltd. Modi plans to borrow a net 4.2 trillion rupees in the coming year.

“The disproportionate market focus on central finances masks the fact that India’s fiscal centre-of-gravity has rapidly moved from the center to the states,” Sajjid Chinoy and Toshi Jain, economists at JPMorgan Chase, wrote in the report. Borrowing by states is poised to overtake the centre’s by 2018-19, they said.

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While higher yields and the implicit sovereign guarantee are a draw with investors, the securities are hardly a match for government bonds when it comes to liquidity. That’s partly why foreign investors, who were granted access to state debt in late 2015, have largely stayed away from the sector.

Investment by global funds stands at 14.8 billion rupees, data from the National Securities Depository Ltd. show. That’s just seven percent of the 210-billion rupee limit available to them.

“We buy state bonds only for portfolios where liquidity risk is not a concern, because the yield offered is close to top-rate corporate bond,” said Badrish Kulhalli, Mumbai-based fixed-income manager at HDFC Standard Life. “The extra supply of state bonds means the government bond yield curve will also steepen.”

Comment by Riaz Haq on April 5, 2017 at 10:25pm

From being world leader in surveys, #India is now facing a serious #data problem: NSS #GDP estimate half of CSO's

http://blogs.economictimes.indiatimes.com/et-commentary/from-being-...

The National Sample Survey (NSS), when launched by the NSSO in 1949, was the most ambitious household survey in the world, covering over 1,800 villages and over 100,000 households across India. The methods used by the NSS became the standard for household surveys the world over.

For example, the use of inter-penetrating samples — essentially, two independent samples drawn from the same population — to test the reliability of the survey results, was developed by Mahalanobis in a 1936 paper and remains a standard tool for survey design. The Living Standard Measurement Surveys the World Bank still carries out in many countries are a direct descendent of the NSS.


We quibble about whether growth was 7.1% or 7.4%, ignoring the fact that our two main sources of official consumption data, the NSS and the GDP data produced by the Central Statistical Organisation (CSO), now tell entirely different stories.
If you believe the NSS, GDP could be just about half of what it is according to the CSO. There are occasional academic debates about which one is correct, which no one in power pays any attention to. And yet, it is almost surely true that both estimates (and their growth rates) are off by a huge margin. More worrying, this divergence has been known for nearly 50 years (though it has grown a lot).

And though we are occasionally told that the NSS is understaffed, or that no one knows where the CSO got a particular number, there is absolutely no political interest in improving things. From being the world leader in surveys, we are now one of the countries with a serious data problem while people talk about the really good data you can get in Indonesia or Brazil or even Pakistan.

Comment by Riaz Haq on May 17, 2017 at 8:16am

Is #India Lying About Its World Beating #Economy? #Modi #BJP http://www.barrons.com/articles/is-india-lying-about-its-world-beat... … via @barronsonline

India just announced its October-December GDP figures, supposedly showing it is still the fastest-growing major economy. You should not believe it. Every quarter there are questions about India’s GDP, with this one no exception. But there is a bigger problem: India refuses to publish the full GDP series, so that the world may not be able to trust the Indian government’s claims at all.

Economic growth should be measured by personal or household income. Instead it is measured by GDP, an accounting tool far more relevant for top-down planners than ordinary people. This is hardly India’s fault, but India has done a small bit to make the problem worse.

In January 2015 India revised recent GDP growth figures higher, among other things raising the fiscal year 2013-4 gain from 5% all the way to 6.9%. It is at this point the fastest-growing economy boasts began. Questions about the revision were raised immediately, including by current Indian government officials, because purportedly faster GDP did not fit with many other indicators. (It still does not.)

Since then, however, the new series has become widely used. While the Indian government argues that it better matches global practices, it manifestly fails to do so in an indispensable respect. The back series – the necessary base for calculations of ongoing GDP growth – has not been published more than 2 years later. Technically, we do not know India’s GDP in 2010, or anytime earlier.

The back series was first to be published December 2015, then mid-2016, and now has no apparent due date and will not be complete. The “globally accepted” new approach therefore makes it impossible to assess India’s GDP trajectory, potentially important information for a country aspiring to rapid development.

The best way to proceed in this case was to start from the beginning, applying the new method to a base year as far in the past as possible and generating new data forward from there. The obvious question is how India determined growth when earlier years could not serve as a base? The answer is unfortunately political: the government’s desire to report faster growth trumped accuracy.

It all may sound familiar. India seemingly always has an eye on China. If China pulled a stunt like this, its “world-beating” claims would be roundly ridiculed. India initially had the benefit of the doubt because it is a multi-party democracy with a competitive press. Those are very good reasons, but not good enough. One benefit of an open society is transparency, and the Indian government is being opaque in self-interested fashion.

India had a poor reputation for statistics quality before the GDP revision. It just revised a GDP growth figure from 7.2% all the way down to 6.5% for Q415.There are other, crucial statistics practices, for example concerning rural electrification, that are clearly biased in the government’s favor. In this context, hiding past GDP looks like a continuation of previous behavior.

------
Most people from pluralist open societies want to see pluralist, open India do well. For now, however, India has the same level of economic credibility as a country like Vietnam (which publishes GDP results even before the year ends). World-beating growth? Maybe. Or maybe poorly founded quasi-propaganda.

Comment by Riaz Haq on June 1, 2017 at 3:45pm

#India's slowing #GDP growth blamed on 'big mistake' of #demonetization. #Modi #BJP

https://www.theguardian.com/business/2017/jun/01/indias-slowing-gro...

Prime minister Narendra Modi’s policy of stopping issue of higher value banknotes has weakened economy, say experts

India has posted its slowest growth rate in two years, ceding its status as the world’s fastest-growing major economy to China, with economists blaming the downturn partly on last year’s shock decision to recall the country’s two highest-value bank notes.
Analysts said the 6.1% GDP growth figure for the January to March quarter – compared with China’s 6.9% – reflected a general economic slowdown in the south Asian giant, compounded by the shock demonetisation of 500 and 1,000 rupee banknotes, worth approximately £6 and £12.

The move led to months of acute cash shortages across India that hit the country’s manufacturing and construction sectors particularly hard, the former recording slower growth than in the same period last year. The construction sector contracted by 3.7%.

The cash recall was intended to hasten the country’s transition towards a formal economy and close down the booming economy of untaxed cash transactions, which aid corruption, the funding of terrorist groups and keeps counterfeit notes in circulation. It was also expected to unearth stashes of untaxed wealth in a country where just 1% pay income tax.

India’s Reserve Bank is yet to say how much “black money” was deposited in banks but early indications suggest it was less than expected.

Gurchuran Das, an economic commentator, said the lagging growth was well below the rate India required to create enough jobs to match the number of new entrants to the workforce, estimated to be roughly 1 million people a month.

“It shows that demonetisation was a big mistake,” he said. “What this has done is put us back about six months. We should have been inching towards 8% annual growth, but have ended up around 7.1%.

“We’ve really got to be at 9% growth to create the jobs we need,” he said. “Already we were having problems creating those jobs, but demonetisation has exacerbated it by a couple of quarters.”

He said the economy had bounced back after cash shortages eased in January and the country was likely reach 8% growth in the next three to four years, a prediction shared by the global ratings agency Moody’s.


India's banknote ban: how Modi botched the policy yet kept his political capital
Read more
Arvind Subramanian, India’s chief economist, said the reduction in growth was “quite expected” after demonetisation, and that the replenishment of cash stocks and the monsoon period would help the economy rebound.

Growth in India has been slowing since the middle of 2016, according to HSBC, but Das said the country’s economy was generally wellmanaged. “The inflation rate is the lowest it’s been in five years, the fiscal deficit has come down, and India has in fact become the largest destination for foreign investment in the world,” the former CEO of Procter & Gamble India said.

He added that the key to creating high-productivity jobs in the formal sector was expanding India’s share of global exports, currently around 1.7%.

India is preparing to introduce a national goods and services tax in July that is expected to make the country a more attractive destination for foreign investment, cut red tape for business and increase trade between states. But Moody’s has warned the country needs to further reduce debt levels if it hopes to boost its international credit rating, currently just above junk status.

Although the implementation of demonetisation was seen as botched by some, the policy is thought to have been a political coup for the Indian prime minister, Narendra Modi. In March, he decisively won an election in India’s largest state that was seen as a referendum on the scheme.

Comment by Riaz Haq on September 18, 2017 at 9:56pm

#India’s faltering economy poses questions for #Modi. #GDP growth 5.7% in Q1 FY18
#DeMonetization #GST https://www.ft.com/content/9dd3bff4-9871-11e7-a652-cde3f882dd7b … via @FT

Two years ago, India was indeed touted as a rare bright spot in a dim global economy. Its growth had outpaced that of a slowing China, and Mr Modi’s government briefly revelled in India’s status as the world’s fastest-growing large economy. Many expected India to enjoy a sustained economic boom. That hope was not realised. Since early 2016, Indian growth has slowed consistently. In the quarter ending June 30, gross domestic product growth fell to 5.7 per cent — its slowest since early 2014, the doldrums of the previous Congress government. July’s index of industrial production has also surprised economists, up just 1.2 per cent, with 15 of 23 industries contracting. New Delhi insists that the downturn is temporary — a wobble due to reforms such as the July 1 introduction of a national value added tax. But many economists suggest India is facing serious structural problems from which it is unlikely to recover rapidly. Companies and banks remained weighed down in high levels of stressed debt. Exports — which helped drive growth after Mr Modi took over — have faltered. Private investment has fallen steadily since early 2016 with little sign of imminent pick-up. “The reasons why corporates are not investing is because there is no demand,” says Jahangir Aziz, head of emerging markets analysis at JPMorgan. “India, like every other emerging market, is dependent on foreign demand to drive its growth. Foreign demand went down, and India did not replace it with an alternative.” Since taking power, Mr Modi’s economic vision has centred on boosting India’s appeal and competitiveness as a manufacturing base — to encourage more companies to “Make in India”. He vowed to revive long-stalled infrastructure projects, including those mired in unsustainable debt. He has talked of slashing red tape to improve the ease of doing business. His government has pushed through the new goods and services tax, which is turning the country into a genuine single market. Raghuram Rajan on India's economic slide Play video But in a world of excess global manufacturing capacity, some suggest that New Delhi’s focus on promoting India as an export-oriented manufacturing base may not deliver the expected results. “When global trade is languishing, it’s very difficult for India to stand up and say we are going to take market share away from China,” says Mr Aziz. “Everybody is fighting for a smaller and smaller pie.” It does not help that the rupee has also appreciated strongly, rising 6 per cent against the dollar this year, as relatively high interest rates compared with other markets attract capital inflows. Many economists argue the currency is overvalued — an argument so far dismissed by New Delhi. “Countries often make a mistake and take pride in the stronger currency, and that is a very risky thing,” says Kaushik Basu, who served as chief economic adviser to India’s previous Congress government. “The rupee in real terms has become strong and that is showing up in exports not doing well and imports picking up a bit too rapidly.”The introduction of India’s goods and services tax has undoubtedly damped short-term economic impact, as many manufacturers ran down their stocks amid uncertainty about how the government would give tax credits for goods made before July 1. “Everybody started reducing inventory levels,” says Gaurav Daga, whose business imports plastic polymers used to make goods ranging from shoes to cables to auto components. “Nobody had any clarity about the transition credits.” But many say India’s economy is also reeling from the aftershocks of last year’s radical demonetisation, when Mr Modi banned the use of nearly 86 per cent of the country’s cash, severely disrupting daily life and commerce. ’

Comment by Riaz Haq on June 1, 2022 at 12:56pm

#India #currency in circulation up 9.9% to over ₹31 lakh crore in FY22. Share of ₹500 and ₹2,000 notes together rose to 87.1% of total value of banknotes in circulation, despite #Modi's #DigitalIndia and #fintech. #Demonetization #BJP https://www.fortuneindia.com/macro/currency-in-circulation-up-99-to...

The value and volume of banknotes in circulation increased by 9.9% and 5%, respectively, at ₹31,05,721 crore and 13.05 lakh, respectively, the Reserve Bank of India's annual report for 2021-22 shows. Comparatively, the increase in currency in circulation (both value and volume terms) was 16.8% and 7.2%, respectively, during 2020-21.

The rise in banknotes in circulation, despite the government's push for digital India and various reforms in the banking and fintech industry, has been attributed to "the second wave of COVID-19 pandemic, which induced renewed restrictions on movement in various parts of the country”.

The RBI supplies banknotes in denominations of ₹2, ₹5, ₹10, ₹20, ₹50, ₹100, ₹200, ₹500 and ₹2,000, while coins comprise 50 paise and ₹1, ₹2, ₹5, ₹10 and ₹20 denominations.The share of ₹500 banknotes, both in value and volume, increased during 2021-22 as compared to the previous year. However, the ₹2,000 banknote share continued to dip in both value and volume.In value terms, the share of these banknotes together accounted for 87.1% of the total value of banknotes in circulation as of March 31, 2022, against 85.7% on March 31, 2021.In volume terms, ₹500 notes constituted the highest share at 34.9%, followed by ₹10 denomination at 21.3% of the total currency in circulation as of March 31, 2022.The total value of coins in circulation rose 4.1% to ₹27,970 crore in 2021-22, while its volume grew 1.3% to 12,46,298.As of March 31, 2022, the coins of ₹1, ₹2 and ₹5 together constituted 83.5% of the total volume of coins in circulation, while in value terms, these denominations accounted for 75.8%.The currency issuance (both banknotes and coins) and its management are performed by the RBI through its issue offices, currency chests and small coin depots spread across the country.As of March 31, 2022, the State Bank of India accounted for the highest share of 53.6% in the currency chests network. The indent of banknotes was lower by 1.8% in 2021-22 than that of a year ago. The supply of banknotes was also marginally lower by 0.4% during the said year than the previous year.During 2021-22, the indent and supply of coins saw a huge drop at 73.3% and 73%, respectively, from the previous year.The RBI data shows that the year 2021-22 saw an 88.4% rise in the disposal of soiled banknotes as compared to the previous year at 1,878.01 crore pieces vs 997.02 crore pieces during the previous year.During the fiscal year 2021-22, of the total fake currency notes detected in the banking sector, 6.9% were detected at the RBI and 93.1% by other banks.Compared to the previous year, there was an increase of 16.4 per cent, 16.5 per cent, 11.7 per cent, 101.9 per cent and 54.6 per cent in the counterfeit notes detected in the denominations of ₹10, ₹20, ₹200, ₹500 (new design) and ₹2,000, respectively.Overall, the RBI spent ₹4,984.8 crore on security printing from April 1, 2021, to March 31, 2022, against ₹4,012.1 crore in the previous year (July 1, 2020, to March 31, 2021).

Comment by Riaz Haq on September 21, 2022 at 8:42pm

India's Economic Situation 'Bleak'; We Know the Issue but Not the Solution: Pronab Sen
In an interview with Karan Thapar, the country's former chief statistician said that India will miss the RBI's target of 7.2% growth for this financial year and that it'll come around 6-6.5%. (real growth going forward will be around 4%)

Pranab Sen: Demonetization and COVID lockdown dried up the informal credit and killed a large percentage of small and medium enterprises.

https://thewire.in/video/watch-indias-economic-situation-bleak-we-k...

https://youtu.be/p3avEIThSN8

In an interview where he paints a bleak and disturbing picture of the state of the economy, India’s former chief statistician professor Pronab Sen has said that we can identify the problems that are retarding growth but we don’t know how to tackle them.

Worse, professor Sen says he is not sure if the government has diagnosed the problems because it has not spoken about them and its silence can be variously interpreted. Consequently, he says that India will miss the RBI’s target of 7.2% growth for this financial year and that it will growth will only come in somewhere around 6-6.5%.

However, he points out, in real terms growth will actually be just 4% which, he adds, is at least 2.5% below the growth India needs to create jobs for its population. This means, professor Sen points out, we can boast of being the fastest growing economy but it’s equally true that we are considerably falling short of the rate of growth we need (6.57%) to create sufficient jobs for our people which, in turn, will boost consumption and spending and create incentives for investment.

In these circumstances, professor Sen said that first quarter growth of FY23 at 13.5% is clearly disappointing.

In a 42-minute interview to Karan Thapar for The Wire, professor Sen, who is currently the country director of the International Growth Centre, identified two critical areas where the Indian economy faces serious problems about which we are not sure what we should do.

The first is the MSME sector which, he added, has undoubtedly shrunk in size over the last two years. The problem is not a question of encouraging and helping existing MSMEs so much as creating the environment for new MSMEs to emerge. The specific problem is that the informal credit line on which they depend has dried up and we don’t know how to revive that credit line. The government does not have a clear way of doing so.

And, the problem afflicting MSMEs, professor Sen says, is the reason why manufacturing has only grown year-on-year by 4.8% and why joblessness and unemployment are an increasing concern. Most jobs are created by MSMEs or the wider unorganised sector and that seems to have stopped or, at least, is not happening in sufficient measure.

The second problem professor Sen identified is the critical services sector of trade, hotel, transport, communication and broadcasting services, which represent 30.5% of employment but is still 15.5% below pre-pandemic levels. Once again, he said we don’t know what we need to do to boost this sector back to pre-pandemic levels. He pointed out that many MSMEs work in this sector and its future is, therefore, directly linked to MSMEs.

Professor Sen also pointed out that the global situation will not be of much help to India. Interest rates are likely to remain high and exports, which have been a support to the economy until recently, will face problems in markets like Europe and America and, therefore, fail to provide the boost to growth they have previously given. However, he believes oil prices could come down.

He believes India is clearly locked into a K-shaped recovery and the arms of the K are moving further and further apart.

Whilst scoffing at commentators and newspapers that have called for broad-based reforms, without identifying what they would be, professor Sen said that the key reform needed would be credit lines that would service MSMEs and provide funds for new MSMEs to start up.

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