Dec

8

It is crazy what is happening in India.

"How India's currency ban is hurting the poor"

The Prime Minister had given a cryptic warning during the month long Voluntary Income Disclosure scheme through October to disclose tax evaded stashes now "or else soon what I am going to do you will not be able to tolerate."

At 8 Pm on 8 Nov 16 when he announced on national TV the demonetisation unofficial gold bars prices traded at up to a 105% premium by midnight. Since then there been a very active market in this and premika have ranges between 20-25 percent.

Endless number of small and big accounting firms have been arranging "entries" at similar premia and these loan entries are to be reversed I'm next year financial.

Real estate lobby which was the biggest borrower and user of "cash" has been hit most. They have gone belly up in the 100 billion USD odd equivalent credit market in unaccounted cash directing the lenders to come back two years later. Bids in realty and rentals dropped 20 percent next morning with hardly any turnover since then.

Physical USD bills (God knows how many trillions of them in fakes are circulating all over the earth) are getting traded in a similar price trend.

The real targets have been 3 fold:

1. Massive supplies of fake currency were anticipated from Pakistan for funding terrorism. That rogue state is the primary supplier of most fake currency bills in Asia.

2. Entire left wing and center wing political spectrum that had fed on 60 years of deep corruption had been caught holding pants down. They deployed the very large number of poor people on India to throng banks to deposit the limited amount of old currency allowed per person.

3. This hoi polloi has found new joy in the manhood of Narendra Modi and this 70 percent voter population at the bottom of the pyramid that was always with the socialist political spectrum has suddenly found a new Messiah in the Right Wing political ruling party! The business community that always backed this right wing party in power today has become sour. The biggest coup of this Re-monetisatiom had been 180 degree reversal in the magnetic poles of the political spectrum. Modi is unlikely to abandon his traditional voter base and is too intelligent a person to lose it. Given the annual budget of the government this year has been preponed by 1 month leaving 2 months time to the end of financial year (budget was always 28 feb and this year will be on 1st feb and financial year ending remains at 31st March) I have an extremely strong hunch that this government will water down income tax rates in a Humongous way and not bug cut. A positive shock is very likely planned.

So to my mind Modi government has diluted the enemy of the nation across the border , enemy of the government (the entire political opposition spectrum) and snatched the voter base. 3 birds killed in one stone.

I am somehow having a deep lurking fear of a super bull market perhaps even a bubble to develop out of India into the next year, a further 10-12 percent equities drop in between notwithstanding.


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1 Comment so far

  1. Jayant Bhandari on December 10, 2016 5:03 am

    From what I have seen, most of those among the rich who had the banned notes got them converted, for at worst a 25% hit to the face-value of what they had. 50% of the poorest people in India, who have no bank accounts, are however stuck with toilet paper, taxed away, stolen for all practical purpose without recourse to any law, with Modi reneging on the contract that is written on each banknote. How can you encourage a society that honors contracts and ethical conduct by starting with disowning contracts?

    During the last one month a massive mafia has developed to cater to converting your banned notes into legal ones–they earn the 25% hit that original owners must face. This has increased institutionalization of corruption. Imagine how after the end prohibition in the USA, the mafia stayed on, doing other things–drug-trade, human-trafficking, etc. Do you think this will reduce corruption? Also, tax authorities are currently getting whatever bribe they are asking for.

    Not many counterfeit notes have been caught because of this banning. This has mostly shown that Pakistan was likely NOT systemically behind counterfeiting banknotes. What is indeed true is that counterfeiting of the new banknotes has been huge, for most people don’t know what they look like.

    I have covered my views on this in details here: http://www.acting-man.com/?p=48062

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