With 65% of ATMs Nonoperational, Goldman Warns India Is "Returning To Barter System"

Tyler Durden's picture

India continues to stagger from bad to worse followinhg Modi's demonetization. With just 35% of ATMs nationwide operational, Goldman warns the shortage of cash continues to incentivize the use of alternate payments, including extension of informal credit and a return to barter systems. Addtionally, the slowdown in activity is dramatically reflected in lower tax collections and discounts offered by luxury car companies.

Goldman Sachs  recently introduced their India 'De-monetization dashboard' in which they track the progress of the Indian government's recent currency reform announced on November 8 via a variety of high-frequency data, including money supply, credit/deposit, interest rates, physical asset premia, real economic activity, price indicators and capital flows.

This week’s update shows that cash availability at ATMs is still low. On real economic activity, there were no major data releases this week. However, PMIs and auto sales data released last week suggested a significant slowdown in activity. Separately, anecdotal evidence suggested continued weakness in activity as shown in the lower indirect tax collections and various discounts given by luxury car companies.

Monetary infrastructure

According to Livemint, 95% of ATMs (out of 200,000 in the country) have been re-calibrated to accept new notes but only 35% of the re-calibrated ATMs are operational. Banks are preferring to make cash available in their own branches instead of making cash available at ATMs. Daily data from ATMs in the four key metro cities – namely Bengaluru, Delhi, Kolkata and Mumbai – show that people are still facing a ‘cash crunch’ in about half of the ATMs. The shortage of cash continues to incentivize the use of alternate payments including electronic payment systems, extension of informal credit and a return to barter systems. The government has further announced various measures to promote digital and non-cash transactions including discounts on digital purchase of fuel, suburban train tickets, and service tax exemptions on transaction charges up to INR 2000 on December 8.
 
Exhibit 1: Shortage of cash in ATMs continues

Source: CashNoCash, Goldman Sachs Global Investment Research
 
Exhibit 2: Still very elevated search interest for retailers accepting electronic payment

Trends in Google searches for key financial terms in India

Source: Google, Goldman Sachs Global Investment Research

Real activity indicators

On real activity, no major data was released this week. However, last week, India's Nikkei Markit manufacturing PMI moderated in November after rising to a 22-month high in October (Exhibit 3). The weakness was across the board, suggesting softening in manufacturing activity post the de-monetization announcement on November 8. The Nikkei Markit services PMI also dropped sharply in November driven by a significant decline in new business, also indicating the potential impact of the cash shortage.

Separately, industry-wide November auto sales (Exhibit 4) showed commercial vehicle sales declined by over 18% mom s.a., car sales declined by 4% mom s.a. and two-wheeler sales dropped by 15% mom s.a. Furthermore, registrations of motor vehicle have fallen since November 2016.

Exhibit 3: India's composite PMI declined sharply in November led by weak services PMI

Source: Haver Analytics, Nikkei Markit
 
 
Exhibit 4: Auto sales contracted sharply in November

Source: CEIC, Company data, Goldman Sachs Global Investment Research
 
Exhibit 5: Motor vehicle registrations have fallen

(December data only partial month)

Source: Road Transport Office, Goldman Sachs Global Investment Research
 

The latest anecdotal evidence (Exhibit 6) suggests continued weakness in activity during the fourth week post announcement of de-monetization. The slowdown in activity is reflected in lower tax collections and discounts offered by luxury car companies.

Exhibit 6: Real activity anecdotal evidence

Source: Live Mint, The Economic Times, Times of India, Business Standard, Goldman Sachs Global Investment Research

Monetary and financial indicators

Money supply

Reserve money expanded by 0.5% yoy as of the week ending December 2, 2016 after a decline of 16.8% yoy the previous week. This was mainly driven by a INR4.7 trillion increase in bankers' deposits with the RBI (+128.4%yoy) post the temporary increase in Cash Reserve Ratio (CRR) to absorb excess liquidity in the system on November 26 (Exhibit 7). This increase in CRR will be withdrawn from December 10 as announced by the RBI. The central bank also mentioned that they have distributed INR 4 trillion of new high denomination notes so far.

Trends in hard assets premia

Domestic gold and silver premia, as measured by the difference between USD-equivalent domestic prices and global prices, appear to have normalized after an initial spike. Bitcoin premia (we calculate this as the difference between the price of Bitcoin on India exchanges and those abroad) also moderated somewhat this week (Exhibit 15).
 
Exhibit 15: Hard assets premia somewhat normalised four weeks post announcement

Source: CEIC, Haver Analytics, Bloomberg, Unocoin, Goldman Sachs Global Investment Research
 
 
Exhibit 16: Google Trends on gold prices have normalised while Bitcoin stayed elevated

Trends in Google searches for key physical asset words

Source: Google, Goldman Sachs Global Investment Research
 

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cheka's picture

whipping those gold bugs into shape.  gold supply must be low

flaminratzazz's picture

Goldman Sachs  of India.. how quaint

I am going to look under my bed tonight

I bet I find a tentacle

JackT's picture

What a damn mess. Is there anyone who could have screwed this up any worse?

City_Of_Champyinz's picture

Wait till the US federal government gives it a try.  You have not seen anything yet...

Quantum Bunk's picture

Some neoKeynesian fucktard from the west obviously advised Modi on this retarded move.

City_Of_Champyinz's picture

I am sure that all those rural Indians have fantastic internet access.  I hear it gets even better the further down you squat in the street while you are shitting in front of your kid's school.  Oh wait, no schools either.  Shithead.

Draybin Deffercon III's picture

From first hand accounts and co-workers pretty much everyone has a cell in India, and/or lives close enough to areas with Internet access. Ditto for African nations. Not that Internet access is needed for Bitcoin to work anyway.

You guys are really so fucking stupid that you still won't understand Bitcoin when it goes to 5, 6, 7 digits and beyond. Please stop procreating.

(EDIT: It wasn't just because of "price" the Microsoft and so many others outsourced all of their call centers, programming, networking, etc. to India. India has some of the highest computer literacy/competency on Earth. Conversely, your country is now famous for technophobic Bubba Gump morons like yourself. Welcome to teh new world... you've already lost.)

philipat's picture

Modi is a tool of the establishment, including the BIS and IMF, who who are trying to unlock supplies of Gold for Western needs because thay are running out and are having early signs of not being able to further manipulate the price of Gold. India is controlled chaos at the best of times and I'm really surp[rised that there haven't been mass demonstrations in response. We the people appoint a Government and when said Government acts in ways which are totally against the interests of the people and screws things up so badly, said Government should be removed. Peacefully or otherwise.

This MIGHT have worked in, say, Australia where the Government could have dressed this up as a move to modernity and efficiency (which they will in due course) but in India, an economy which has so many poor people who rely on casg exclusively, this is absurd. Modi NEEDS to be replaced as quickly as possible, this is just pure arrogance and stupidity.

OverTheHedge's picture

I know from first hand experience that not everything on zerohedge is factually correct. There is a tendency to exaggerate.

This article is trying to convince us that the Indian economy has failed, people are starving, there is no money anywhere, etc, etc.

Some locals posted on a previous article to suggest that all is not as chaotic as reported. India is a vast place, with a mind-boggling number of people, and you can find everything you want in such a madhouse, such as banks with questions of people, disgruntled shop-owners etc. All I say is, examine all sides of the story, and try to get some info from people who actually live there.

Case in point - you all know Greece is completely inundated with millions of refugees, and will probably sink some time next week. I am STILL waiting to spot my first. As soon as it happens, I will let you all know, I promise. Up until now, nary a one.

Perimetr's picture

Hey, here is the final proof that 

no one needs cash. 

See how well its working for India?

philipat's picture

Greece uses the EUR (still, I believe) and even though the EUR 500 note has been removed, there is still a EUR 200 and a EUR 100 note. So I'm not quite sure what is your point? India is a cash economy and Modi essentially withdrew 85% of the cash from the economy for reasons best known to himself.

This article is doing no such thing that you suggest but is simply setting forth the facts of what has been done in India.

OverTheHedge's picture

Sorry - had to nip out and do some work.

My point is simply don't believe everything you read on Zerohedge; Tyler occasionally exaggerates (as do I, but that is a different story).

Is India really going back to bartering, as suggested? A long way down this thread you will find a comment by a newbie called knownothing, who seems to be suggesting that this article is a pretty major exaggeration, in the same way that Greece being utterly swamped by immigrants is an exaggeration (not saying there aren't any at all, just not gazillions, as inferred here).

Knownothing might be a very useful eye on the ground, or he might be Indian government disinformation, pretending all is fine with the world -  I don't know which.

philipat's picture

I did business in India for over 25 years and I live in Asia. I do know India and Indian mentality quite well. As I said, India is a CASH economy and majority of the population don't have Bank Accounts. They just survive from day to day. It is true that, just like in Greece, tax evasion is the national sport but even then, only a very small portion of the population is involved and this is not a sensible way of attacking the few by hurting the many. This policy makes no sense in such an economy unless Modi has ulterior motives. Which I'm sure he does.

So ZH is "fake news" right?

BobEore's picture

Wanted to simply upvote you, for showing evidence of having - contrary to the usual punter who comments herein - LOCAL KNOWLEDGE. But, since due to some bizarre particularity any such attempt results in an error msg., I respond instead with this comment.

Contrary to the spoutings of your detractor with the heavy propensity to use the downvote button as a SUBSTITUTE for reasoned discussion... yes, the article is in keeping with the general trend to dramatize rather than inform.

And since he claims to be "not sure" of your point, allow me to reiterate it; just as "refugees" are light on the ground when you ACTUALLY ARE IN GREECE, there is less evidence of societal breakdown in India - due to recent Modi-meddling, at the moment than your typical occidental hyperventilanting 'altmedia' psyop would have us believe. But that's only because the breakdown of Indian society has been already proceeding apace - via the rule by MONSANTO/GOLDMAN/BIS/ regime which has been in place now over over half a decade. The events of the moment are only symptomatic of an ALREADY ACCELERATING devolution in Indian society which would be proceeding irregardless of the currency crisis.

Sites such as this one like to 'frontrun' events by throwing out effects and thereby disgusing cause. It's a cute angle which inveigles many an American Exceptionalist into supposing their own prejudices to be supported by facts on the ground... but the effect is limited upon those who travel in this world enough to make one's own determination - based upon their own lyin eyes!

btw. When last in Greece... circa two months back... the 500 Euro note was still being accepted - altho with some difficulty - and the country was incredibly DEVOID of places where one could CHANGE GOLD for fiat. Armchair pontificators be warned: your stories will be rigorously debunked.. along with your pretences to be any more than ciphers for whatever the prevailing meme de jour may be!

philipat's picture

Um, you have me totally confused. What is your point in terms of my earlier comment please?

bobsmith5's picture

What is absolutely clear, regardless of other economic consequences, is that this is theft on an unprecedented grand scale at the behest of the central banks. It is likely a move to discourage buying gold during the most active wedding season. This is the kind of insanity that only central banks would embark. Modi is clearly a puppet of same like most government officials and heads of state in the world.

Wile-E-Coyote's picture

If TPTB are trying to get their hands on India's Gold they have made a big mistake. Gold is sacred in the Indian culture, you will have to prize it out of their dead hands.

Modi's actions will likely increase the demand for PMs in India.

philipat's picture

Yes, agreed. Which is why I believe that Modi, an Indian who, presumably, understands Indian values, has done these things. The only possible reason can be that he has been subverted by the Western Establishment to do their will.

SDShack's picture

Yep, I suspect its only a matter of time until the good old days in India where reps in parliament elevated screaming debates into throwing microphones and chairs at each other.

philipat's picture

I note that the IRS has realized this also?

City_Of_Champyinz's picture

If the powers that be are threatened by bitcoins, they will destroy bitcoins.  All it takes is some software development and a few new laws.

Draybin Deffercon III's picture

Again, you have no f#cking clue what you are talking about. You can not "destroy" Bitcoin. You cannot un-invent guns. If you kill everyone who knows how to make a zip-gun and you destroy every last gun on Earth, someone can make a new gun in 10 minutes. Bitcoin and crypto exist in teh same manner.

Jack's Raging Bile Duct's picture

Fonestar, you may need to refresh yourself on Gresham's Law, as well as Mises's Regression Theorem.

Bitcoin isn't money, it's currency. It's only use is being used as a barter facsimile. It has no inherent value and cannot be purposed to anything other than as a trading unit. There is no commodity value to it.

If a single Bitcoin goes "5, 6, 7 digits and beyond", nobody is going to be using it for anything. It would be a currency that won't be traded. All of its utility of being transportable, divisible, etc. would be invalidated. It's something for you to think about.

Draybin Deffercon III's picture

There is no such thing as "inherent (or intrinsic) value". Without humans to use it, gold and silver are just metals too. Gold and silver have no type of value to goats, chickens, insects, etc.

And I don't care if Bitcoin is, or will ever be considered money proper. Obviously, "non-money" like Credit Cards and Pay Pal did a lot of things better than money ever did do. Like purchase things in other countries for immediate shipping to you. Like grease the wheels for the Internet E-commerce revolution that created more value and wealth for people than any point in human history.

Funny how you never hear the ZH crew talk about that one eh?

Jack's Raging Bile Duct's picture

When people refer to intrinsic value, it's that it holds material value. It can be purposed to anything. It is not reliant on belief to be of use. As stated, BitCoin has no such property. This is my principle source of doubt. Without this, Bitcoin is only as durable as the capricious nature of human beings. Do you truly want to put all of your eggs in that basket?

While electronic commerce has certainly created some specific efficiencies, I don't know that I would support your claim about it creating more value and wealth than ever before in history. That's a separate conversation though.

I agree that the requirements of a currency need to meet the transferability and flexibility demands of the 21st century. I'm just not convinced any present digital currency will survive this phase, nor when greater technologies like quantum computing emerge. In the meantime though, I will appreciate the greater and less centralized competition in the currency markets.

Draybin Deffercon III's picture

I know what you guys are trying to say with "intrinsic value" but it is important to be precise here. Gold and silver only have situational value within human society. There are no magical particles inside a silver or gold coin that give it value.

And as for "capricious nature of human beings", the Bitcoin network has shown amazing resilience towards change, entropy and whims of developers. It's so far at least, held very true to Satoshi's original vision. And I am glad that it hasn't attracted the Linux dev, philosophy of "hey that worked fine, but now we're gonna try this instead!" Beyond just an amazing technology, I think the advent of crypto (together with the crumbling of the current establishment, media, etc) has a very real possibility of ushering in an age of amazing world peace and prosperity built on true global commerce.

logicalman's picture

Bitcoin has about the same intrinsic value as the US dollar.

The big difference is that one is backed by a huge gang of armed thugs, the other, not so much.

 

Draybin Deffercon III's picture

There is no such thing as "intrinsic value".

The Internet is more powerful than the US Military.

Did you read what I just said?

logicalman's picture

I don't think you read what I typed.

I pointed out the lack of intrinsic value in both Bitcoin and the US dollar.

You appear to have made assumptions on other things that I in no way referred to.

Is the dollar backed by a large band of hired thugs?

Is Bitcoin backed by a large band of hired thugs?

I was pointing out the answer to both these questions, nothing more.

In case you still need help, the answers are Yes and No, respectively.

Do you get it now or do you need me to draw you a picture?

City_Of_Champyinz's picture

"If you put the federal government in charge of the Sahara Desert, in 5 years there'd be a shortage of sand." - Milton Friedman

Always liked that one.

flaminratzazz's picture

well they have sure done a bang up job on the drugs, poverty and freedom. I wonder which ones the war was on?

you have to forgive me, I am in a bit of shock.

Fractal Parasite's picture

India is the pilot study before rolling out the cashless society elsewehere.

Jack's Raging Bile Duct's picture

If they can pull it off in India, they can do it anywhere. I'm amazed that they had the gall and nerve to try, bold as it is.

atthelake's picture

Americans will take that the same way we have taken everything, else. We, here at ZH, talk a good game but we are all sheep, just like the rest.

lil dirtball's picture

Really. And what are you going to do? Vote again for some corrupt crony-ass politician who's gonna MAGA?

Or quit your job, leave the fam at home and go on the hunt for someone to kill?

Or ... or ... are you gonna just crack a cold one and kick back in the comfy chair and holler at your monitor?

What - exactly are you gonna do about it, white Conservative man? What do you think the folks in your neighborhood are gonna do?

I bet no one so much as burns a tire.

There's some myth that white Americans are some tough hombre's ... but Americans haven't been tough since the war of northern aggression. White Americans look like a pretty big bunch of PC pussies, TBH, and the Right followers aren't any different than the left followers.

Followers. Not an independent thought or deed amongst ya.

(not my junk - I don't junk, ever)

flaminratzazz's picture

(not my junk - I don't junk, ever)

that one's mine

logicalman's picture

Not in US, but my approach is to take part in the madness as little as possible.

No car, TV, cell phone, credit card, bank account (I do have a credit union account) or debt.

I'm sitting on a couch I picked up for free having just eaten lunch at a table I picked up for free.

I have plenty of hobbies and interests that cost close to nothing too.

Simple life that feeds the monster as little as possible.

I've spent thousands of hours researching and trying to educate people as to what's going on in the world - that's my way of trying to make a difference.

 

BobEore's picture

Well, in fact, yes.

There's nothing that a neo-liberal ultrantionalist Hindu demagogue can do - to provoke societal collapse on a grand scale - that a neo-liberal Islamist ethno-supremacist demagogue can't do better.

Particularly if he has the advantage of starting with a more economically advanced subject population to disenfranchise/pauperize. Turkey's descent into economic chaos and collapse will be even more brutally short and sharp. The collapse of the lira is only beginning - this weeks "get your dollars out from under the mattresses/buy turkish lira" decree from DEAR LEADER has ALREADY fizzled out - the short-lived rise in lira value was over within 3 days.

Now - stripped of their back up plan  for dealing with economic emergency - the saps who sold off their foreign currency will be watching their net worth dive daily, and hyperinflating prices for the many imported necessities like petrol drive their fetish for shiny new(bank financed)automobiles straight into a brick wall. Credit defaults soaring, business loans likewise, tourism dead, exports collapsed. And the pain has not even begun.

All to cultivate the omnipotent fantasies of a neo-Ottoman fanatic and his jihadist backers.

A generation ago, 3/4 of the populace held the majority of their savings in shiny metals - ziynets, cumhurriyets, jewelry. Tricked by their own government to give up the tanglible forms of wealth which had served past generations so admirably in battling previous episodes of collapse, the modern citizens of this failed Republic are now set up to be roadkill in the final chapters of this Jonestown on a grand scale.

Not half a dozen years back, Turkey was the up and coming success story being touted as a European entry, the middle eastern power broker, and an economic success story writ large. Like the rubble of cities such as Diyanbakir in the Kurdish south, the peoples' starry-eyed dreams of getting ahead - as full members of the modern world - have been bulldozed by the mad visions of a clique of psychopathic religious fanatics whose sole intention is to bring everyone down with them once their fantasies of power prove to be a bankrupt as their economic pipedreams.

It's no accident that India and Turkey share the same fate of devolution into medieval type conditions - nor that the regimes of both rolled out "gold monetization" schemes early in the present decade - there's no honor a'tall amongst these modern Ali Babas, whose pretensions are promoted by the same moneypower which has now added USA to it's basket of puppet states. Israel is now chief arms supplier to both India and Turkey - and chief recipient of American "aid" of course, in financing that profitable industry of death. One now being turned upon the citizens of those same unfortunate nations.

Mustafa Kemal's picture

Its not completely clear to me that this is a blunder for Modi.  Hanlon's razor has two edges.

HRH Feant's picture

OMFG cut it off! Stab it! Fucking squid.

Kirk2NCC1701's picture

Skip the FUD and superstition.  You should have hedged with more than PM.

The painfully obvious hedge for PM is...[drumroll]

GS stock. Duh!

flaminratzazz's picture

I just was never that good at picking em at the glue factory.

OpTwoMistic's picture

Do they hang politicians in India?  Coming soon.

junction's picture

India is a country where at least 150 million residents have no access to flush toilets or any other means of defecating outside of by the side of the road.  Now PM Modi is flushing the entire Indian economy down the toilet with his demonetization scheme.  Those Indians who can have one more incentive to join the Indian border crossers already trying to enter into the United States illegally.