India: The next Pakistan?

India’s Rapid Degradation

This is Part XI of a series of articles (the most recent of which is linked here) in which I have provided regular updates on what started as the demonetization of 86% of India’s currency. The story of demonetization and the ensuing developments were merely a vehicle for me to explore Indian institutions, culture and society.

Tribal cultures face an inherent contradiction. They create poison from within to grow more collectivist, controlling and tyrannical — members of the populace looks for nannies, and they readily find sociopaths to exploit that need. Their lack of organizational skills, their inability to engage in economic calculation and their irrationality lead to massive internal stresses and the ultimate devolution of such an unnatural society.

India finds itself in a situation where it is grasping for more totalitarianism to solve the problems that totalitarianism created. The demonetization exercise was an assertion of India’s underlying tribal and collectivist culture.

Demonetization Pain Continues

Cashless ATMs continue to be the new normal in India. In a recent conversation, economist Professor Madhusudan Raj mentioned that as many as 70% of the ATMs in his city are still not operational. The situation in villages and small towns is much worse. Banks are often clogged with people.

Eventually most people who must have cash will get it, but businesses need easy access to large amounts of their own cash without incurring transaction costs. They continue to face horrendous problems, which are translating into closures, retrenchment of staff, and bankruptcies. The tax authorities are getting increasingly rapacious. According to Professor Madhusudan Raj:

“The tax department is busy conducting raids on old widowers, small traders and merchants like chicken-shops, shoe-shops, small restaurants, gas stations etc.; pretty much anyone who deposited more than half a million rupee in banks during the demonetization process. The department is forcing small traders to declare income under Modi’s PMGKY (Prime Minister poverty alleviation) scheme, but leaves big corrupt business tycoons untouched.”

Draconian regulations on the use of cash are increasing. Businesses are in fear of the State. Freedom of speech is rapidly receding, not only because of fear of the government, but also because Indians are becoming increasingly fanatic.

Any new cash continues to find its way to the financially powerful, leaving small businessmen and the informal sector reeling in economic trauma. The normal rhythm of the economy has been destroyed. People continue to delay discretionary purchases. The market continues to be slow.

Businesses are failing and the poorest are finding employment very difficult to come by. Food prices are still much cheaper than normal, as a result of the economic struggles of poor people. Farmers are facing huge financial pressure in turn.

As is the case with an irrational tribal society, many members of India’s middle class are utterly lacking in empathy for those who are suffering. Slowly but surely, universal principles assert themselves though, and economic harm is flowing toward them. Alas, they still fail to recognize the chain of causality.

But the Media and the World Bank are in Awe

The international media and the World Bank, find inspiration in what is happening in India. India has recently released a GDP growth figure of 7%. India’s new identity card scheme, Aadhaar, is believed to be a massive success, so much so that the World Bank is urging the world to copy it.

The Indian stock market has risen nicely over the last few weeks. So has the Indian rupee. Moreover, Narendra Modi’s party has just celebrated massive victories in recently held provincial elections. What is not to like about India?

In my last update, I explained why the 7% growth figure is a mere paper figure not reflected by reality on the ground. India’s economy very likely suffered huge negative growth last quarter. An increase in revenues was only experienced by politicians and bureaucrats, who collected larger bribes than ever. The common man no longer has the courage to haggle over bribes these days. He pays whatever he is asked to pay.

Ironically, Modi gave the common man and particularly so-called educated people in India huge hopes, and not unlike people in North Korea, they are increasingly nationalistic and proud.  93% of the population have indeed signed up for the Aadhaar ID. It is not compulsory to have one, but the Indian government has made it impossible not to have one. People who don’t have these cards are simply opening themselves up to getting exploited in new ways.

India’s GDP per capita is $1,718, making it poorer than Africa. You can enforce a perfect tax regime or a perfect ID system (neither of which is actually possible) on such a chaotic society, but you have to have productivity to make use of increased taxes and a better ID system. Indians are mostly unskilled, uneducated, and untrained, in short, largely unfit for the modern economy.

Any rational ruler would have focused on creating competence among Indians, without which any hopes connected to increased taxation will fail. Moreover, the situation can easily become a major humanitarian crisis in the coming age of robots.

Many people will lose their ID cards soon — as perhaps more than 80% of Indians do not live in proper housing. They lack safe storage to preserve such cards. Moreover, only about 10% to 15% of the population are “benefiting” (by getting subsidized food, gas, etc.) from the cards. Could it be that most of these beneficiaries are members of the middle class?

India’s stock market has gone up nicely over the last quarter. The stock market is not necessarily a yardstick measuring the performance of the economy. In fact, it often goes up when long-term returns from economic activity are expected to fall. The Indian government has forced Indians to move their money from the informal sector to the formal, in order to help their corporate cronies and increase tax collection.

Alas, India’s growth is generated by its informal sector. Modi has seriously harmed this sector through the demonetization exercise. Eventually, the formal sector, which has been sitting comfortably while it was subsidized by the informal sector, will suffer as well. Twelve million people who join the workforce every year face a horrendous future in a country where failing to find a job is routine.  Indian demographics are a massive liability. And crime is increasing.

Sensex Index Daily

Sensex index, daily. If you wonder why stock markets are not considered good yardsticks of economic performance, ponder the IBC General Index in Caracas for a moment, in local currency terms the best performing stock market in the world over the past 15 years. It is actually close to a record high, similar to the Sensex. Venezuela’s economy is doing so well, that hungry people are hunting for rats in the streets of Caracas. [PT] - Click to enlarge

It Keeps Getting Worse Ever Faster

I would not have written any more updates on the demonetization crisis, for a lot has already been said. But recently Modi’s party won elections in the province of Uttar Pradesh (UP).  UP is the most populous province of India with 200 million inhabitants, and it has historically decided who comes to power in the federal government. It has per capita GDP of $730, fairly close to that of Afghanistan.

Professor Madhusudan Raj asserts that Modi’s BJP won primarily due to the anti-incumbency vote. If anti-incumbency stays in fashion, Modi might be in trouble in two years time when the next federal elections come. What might he do to avoid the inevitable? In caste- and class-ridden, backward and illiterate UP, demagogy is much more important than economic growth plans.

He wants to make India a pure Hindu nation. Several years ago he started a religious association, Hindu Yuva Vahini, an organization mainly playing host to a criminally-minded unemployed rabble.

Yogi Adityanath asks for unity among Hindus and a religious war

Yogi Adityanath suggests killing 100 Muslims for each Hindu killed [a really nice guy – PT]

Conclusion – Maybe Give that Wall a Chance…

India’s rapid descent continues. It is hard to dispute that India is well on its way to be the next Pakistan. Or perhaps India is already worse in some ways:

One of the largest illegal migrant groups in the US is from India. In this modern era, India’s crisis will not stay limited to India. As is the case with those from other eastern religions and societies, once they arrive, Indians vote to mirror what they left behind in their home country, often unknowingly — as the virus of totalitarianism is deeply ingrained in the culture of irrationality.

Richer Pakistanis Wealth per adult has outstripped rival India

As difficult as it may be to believe – Pakistan’s adult citizens are actually wealthier than their Indian brethren – and the gap is widening [PT]. - Click to enlarge

Charts by: StockCharts, Bloomberg

Chart captions and image captions by PT where indicated