Indian Economy Crashes As Modi's "Black Money" Theory Collapses

Tyler Durden's picture

Amid social unrest and loss of faith in the nation's currency, India's economy has ground to a halt with its Composite PMI crashing by a record in the last month as demonetization strikes.


However, even more problematic is that Indians have validated 82% of bank notes rendered worthless by PM Modi, dramatically undermining the government’s estimate of unaccounted wealth in the economy. As Bloomberg reports,

About 12.6 trillion rupees ($185 billion) had been deposited into bank accounts as of Dec. 3, the people said, asking not to be identified citing rules for speaking with the media. The government had estimated that about 5 trillion rupees of the 15.3 trillion rupees sucked out by Modi’s move would stay undeclared, implying that this was cash stashed away to evade taxes, known locally as black money.


Lack of a meaningful cancellation could be a double blow for Modi as the measure was being used as a political and economic gauge of the success of his Nov. 8 move. One of Modi’s biggest campaign pledges was to expose black money in Asia’s No. 3 economy, and economists were viewing the cash as a potential windfall for the government.


"Some of the windfall that the government was hoping for from the cancellation of notes will be dented," said Anjali Verma, chief economist at PhillipCapital Ltd. "That means the fiscal stimulus that was being expected might also take some hit. That is not good news at a time when direct consumption, private investment is not expected to pick up."


"Markets are not too worried at the moment," said Chakri Lokapriya, Mumbai-based managing director at TCG Advisory Services, which manages about $3 billion. "But if 12-13 trillion rupees comes back into the system it defeats the whole theory of black money."


In such a situation where the gains of demonetization aren’t apparent, individuals will more closely analyze the pain. A slump in demand due to the cash shortages will hurt company revenues and government tax collections, widening the budget deficit and ultimately weakening the rupee, Lokapriya said.

So was the whole effort merely, as Modi admitted, a move towards a cashless society after all? And not in any way related to corruption? Either way, it is too late now as faith in the fiat currency has collapsed.

Finally, while most shrug and say "how does that affect us?", the tumult in India is weighing heavily on the rest of the world via the oil market. India has been the world’s fastest-growing crude market and that may weaken as the government’s cash crackdown slows the economy. As Bloomberg reports,

Diesel and gasoline use, which account for more than half of India’s oil demand, will slow or contract this month and possibly early next year, according to Ivy Global Energy Pte., FGE and Centrum Broking Ltd.


“As the Indian economy largely depends on various cash-intensive sectors, the demonetization saga will no doubt slow down economic growth in the near term,” said Sri Paravaikkarasu, head of East of Suez oil at FGE in Singapore. “Moving into the first quarter, an expected slowdown in the economic growth should marginally drag down oil consumption, particularly that of transport fuels.”


Diesel consumption could fall as much as 12 percent and gasoline demand as much as 7 percent this month, according to Tushar Tarun Bansal, director at Ivy Global Energy.


“I expect to see a much smaller growth in diesel demand of about 2 percent in the first quarter,” Bansal said.


The possible slow down this month and into next year is a reversal of the demand spike seen in November as people rushed to fill their tanks to take advantage of a rule allowing fuel retailers to accept the banned 500 and 1,000 rupee ($15) bills until Dec. 2.

So an Indian PM 'flaps his wings' and the rest of the world may have a hiccup.

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Killtruck's picture

Fuckin' retards.

anarchitect's picture

Perhaps the percentage of notes that have been exchanged is higher than expected because there are more counterfeit notes than expected.  Rupees don't exactly look like they'd be hard to forge.

Jim Sampson's picture

You'd think people in power would be intelligent...


You'd be wrong though.

KittyKittyBangBang's picture

gettin rid of the monet .... what a stupid ideer ... even i widnnt come up with that

manofthenorth's picture


Ignore this age old FACT at your own peril.

Do it for the CHILDREN !


ParkAveFlasher's picture

Monetary transitions are typically well-managed and taken up easily without social meltdown. /s

BaBaBouy's picture

India Cage Fight ~~~ Paper Fiats Rupee VS Real Money Metals ~~~

Bam_Man's picture

And the fact that almost half the f***ing country is ILLITERATE makes counterfeiting even easier.

manofthenorth's picture

Say what ever stupid shit about Indians that comes to mind BUT.....

it is estimated that as much as 70% of Indian family's SAVINGS is in Gold and Silver.

EVERY US FRN IS a counterfeit,and most Americans do NOT save so who are the dumbasses eh ?????

ParkAveFlasher's picture

It's not like low-wage English-speakers threaten jobs in the US.  /s

Not like currency meltdown will make low-wage English-speaking labor MORE competitive price-wise.  /s

Jethro's picture

Point taken, and I am well aware of how Indians not only understand the concept of storage of value, but also how much they trust their government. There is a lesson here for the people of the US to learn. The corruption there is ubiquitous and cultural---pretty much all over Asia in general, but the Indians turned it into a cultural, philosophical canon. It's actually pretty amazing to live there as an outsider and to see this on a daily basis. India is a bureaucrat's dream, with upper, middle and even low-status bureaucratic functionaries in on the take. Nobody abuses Indian like the Indians do---not since the muslim hordes rolled in anyways.

hannah's picture

this gold talk is really pointless. if everyone in the usa tried to switch their fiat to gold the price of gold would go to its true value(like a million an ounce) and everything would collapse. there isnt enough gold on earth to cover all the fiat. just as the indian $20 bill imstantly was worth $80 to swap a $100 bill because there arent enough $20's......


we are screwed. fiat will go to zero and the usa will do the same thing india is doing.

Jethro's picture

But that is exactly what makes India such an interesting place. Every single day, I experienced a WTF moment there for about a year and a half.

Koba the Dread's picture

What possible relationship to counterfeiting does illiteracy have? For that matter, what possible crank site did you get your illiteracy "statistics" from. India has a 75% literacy rate.  See (which also includes a pretty map in case you are illiterate).

I've been doing business in India and with India for over 50 years. Even Calcutta street sweepers have more interesting things to say and far more insight than almost any American could gin up even if he was trying hard.

You can bet that Mr. Modi, who ain't the brightest star in the firmament, relied on Harvard-trained MBAs to come up with this particular bit of idiocy. Guaranteed!

JamesNorman's picture

No Shit!  What a bunch of tards..  I must say I was way more nervous when Hilary almost became pres.  With that being said you need to play the game and follow the money.  Why did Jeff Bezos and Bill Gates invest 150 m into little known Nasdaq stock Itus Corp?  They are thinking cancer is going to be the safe money during the crash.  I followed suit

kiwigal's picture

A dr. told me 25 years ago that if you live long enough you will get cancer. As the population is living longer cancer will be a money spinner for drug companies along with drugs that are required by the obese and fat in our populations.

The Saint's picture
The Saint (not verified) Killtruck Dec 7, 2016 11:29 AM

It's a Pakistani conspiracy to collapse the Indian economy.


KittyKittyBangBang's picture

@tehsaint modi shuld blame it on the pakis ..... and get away with it all

Sisyphus's picture

Nowadays, everything is a Pakistani conspiracy, just as everything is a surgical strike.

This guy is a megalomaniac, suffering from delusion of grandeur. When demonetization was first announced, it was done to weed out black money and stop terror financing and terrorism. Then a few days later terrorists attacked army camps in Kashmir. So, demonetization did not stop terrorism. Strike 1

Now, it seems that most of the bank notes have been validated. So, black money wasn't that prevalent in the economy. That's probably because most of the black money has been converted into gold or invested in properties and stock market. So, there goes his second argument. Strike 2.

Finally, he is asking poor people to steal black money deposited in their account and has hinted that the money they steal will be given back to them.
His entire premise behind demonetization is, therefore, misleading. That's strike 3.

So, what might be the true intentions.

1. Seizure of private gold using black money as an excuse.
2. Cashless economy to control 1.3 billion people.
3. To install an authoritarian regime furthering the NWO agenda.
4. Destroy all opposition parties and make BJP the only party to rule India. By the way, in the last election, BJP won only 31% of the votes. Win just 31% of the votes and destroy the country with your authoritarian agenda. Such is the tyranny of the majority.

CNONC's picture

Where is cool_guy and his alter ego trackwhack?  I'd like to see him defend this new datum.

Dubaibanker's picture

They both are paid propoganda trolls employed by Hitler Modi's party, BJP. They get paid for every comment and tweet and Facebook post....Most sit in Thailand but some are so swayed by the rhetoric that they even have regular jobs in several countries.

Now Twitter ID's have opened up who wish to report such trolls to Twitter and actually get them shut down. Such is the hatred of these worshippers known by the Hindi word "bhakt". 

Check this guy out.

WillyGroper's picture

1. stem the flow of gold to India.

2. cashless - control/bail in.  iow, theft.

dark fiber's picture

Modi is clearly an idiot who cannot think for himself and is used as a puppet.  It would be interesting to see who his advisors are and who they are tied to.

Jethro's picture

LOL! Don't give them any ideas.

ejmoosa's picture

We do not understand how the economy works, but we sure as hell can improve it, right India?

We do not undestand how the climate works, but we sure as hell can improve it, right Al Gore?


The best way these folks can improve things is to get the hell out of the way.


Yukon Cornholius's picture

Since Al Gore's little presentation with the elevator lift over a decade ago, there are more cities underwater due to pension ponzis than climate change.

Kirk2NCC1701's picture

re "Fuckin' retards"... Do not attribute to Incompetence, that which can be adequately explained by bankster Malice.

To the extent that the PM does not back down -- like he should, for the sake of the economy and the country -- is the extent to which the Banksters are nor only behind it, but the extent to which they will go to assert their Full Spectrum Dominance over the Gov and the People.

Don't confuse the Messenger with its Authors.  As many here often do. [sigh]

Raffie's picture

It is crashing a lot faster then they thought it would.

CPL's picture

Because when everyone is lying about money supply, especially hard currency, it really doesn't matter how they stage an economic transition.  In a country of 1.2 billion people, that misalignment of metrics in combination with a problem of market size and scale.  They took a leap of faith, when it would have been wiser to measure the situation twice, to only cut over once.  That would have been advisable. does this effect the 'first world'.

All your stuff is made there and when you've got 1.2 billion people using a toolbox of currencies in regional micro economies that actually produce stuff for people.  This is going to be the mythical beast known as a "fungiblity crisis" in the making.  How liquid is a currency.  Easy enough to measure in a central bank regime because there really is only one retailer offering 'money'.  But throw in probably 17 other types of trading instrumentation that were 'meh' yesterday, today people will be VERY motivated to find value in a trade to transact a profit.  You have to think about what is an individual's next steps to make sure business gets done today in India:

- How that got done a week ago in India?  Centrally managed Rupees that were part of a large currency subscription service to trade pairs against each other all managed by a small group of people that make the determination of the value of a country. (of course there will be bias) 

- How that gets done as of today?  Bit of this, bit of that, some of this and a little of that.  Maybe some paper money, but no one trusts it.  Little bit of bitcoin.  An ounce of gold.  Couple ounces of silver.  Plus a smart TV in a box.  Maybe throw in a lamp that's collecting dust.  Haggle, trade, dickers, penny pitching, saving, shuffling, the dance.  Million names for it.  It's also called capitalism and it's how things run well, on time and keeps everyone interested in something with a carrot properly situated in front of the horse.

This is going to be an interesting thing to watch for all of you since you've never actually seen capitalism happen.  We've all watched the poorly orcestrated mimick of capitalism that's really a centrally managed stage show with prices programmed into the system to ensure capital (debt) creation.  For India, you'll watch people that were very dependent on that central managed service get their asses kicked by people that know how to hussle a street corner and move product while making a profit.  Because the business doesn't stop for anyone, any day, everything is priced to move and make a profit in real capitalism.

Yen Cross's picture

  We clearly need MOAR central bank insulation.

  * Thanks for the downvote George

Nobodys Home's picture

Then stuff those rupee notes into the cracks in the window sill to prevent bank drafts!

buzzsaw99's picture

modi leading the charge toward idiocracy bitchez

illuminatus's picture

Idiocracy, possibly. It is easier for me to believe that Modi is part of the bankster elite, or under the control of the elite and is doing this to usher in a cashless society or whatever society under more direct control. It is just hard for me to get behind the whole idea that the people doing this are stupid. They may not always know what the results of their actions will be, but they for sure have to motive to grab more power and control.

DirkDiggler11's picture

Thank You Modi for re dedicating the people of India to the fact that they can only trust in Gold. The average citizen of India already has a strong distrust of Fiat, and for a damn good reason.

buzzsaw99's picture

President Camacho: Shit. I know shit's bad right now, with all that starving bullshit, and the dust storms, and we are running out of french fries and burrito coverings. But I got a solution.

South Carolina Representative # 1: That's what you said last time, dipshit!

South Carolina Representative # 2: Yeah, I got a solution, you're a dick! South Carolina, what's up!

PresidentCamacho's picture

dont worry.  we got this guy notsure and hes the smartest man on the planet. He's gonna fix everything. 

NugginFuts's picture



oops I mean pass the curry.

buzzsaw99's picture

one does not simply pass the curry. [/meme]

Jethro's picture

I remember the first time I flew into New Delhi. You could smell the city about 30-minutes before landing. It took me a long time figure out that smell. I concluded that it was a combination of diesel exhaust, urine, masala and BO. Not necessarily in that order.

gregga777's picture

India's Narendra Modi should be hanging from a lamppost along with the digital money Oligarch's who bribed him to demonetize India's fiat currency.

wisehiney's picture

Your government loves you.

RagaMuffin's picture

As stupid as we may be, God sends a reminder that worse can happen

Bam_Man's picture

Yeah, it was "a move towards a cashless society", as in "cashless" = "flat broke".

Seasmoke's picture

Hang him upside down. Outside a 7-11.

Yen Cross's picture

   That was funny :-D

                                         Well done

Snaffew's picture

so Modi thought he would collect over $5 trillion rupees of undeclared money, and with over 3 weeks to go in the monetery exchange, over $12.6 trillion of the $15.3 trillion have already been exchanged.  It's possible that this moron actually sees a deficit to his estimates and collects $16 trillion in exchanges.  His $5 trillion "windfall" for the government is quickly approaching his worst nightmare.