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Y_ 3 years ago.
Update – Indian Banking Crises Part 3 (End)
Thanks to all of you readers – it has been a difficult topic but badly needed as what happens in India will affect us all.
I am grateful to my Indian friends and especially those in the Reserve Bank of India. My thanks as always to James G Rickards / Strategic Intelligence and German journalist Norbert Haring, a veteran of that nation’s respected business daily Handelsblatt.
5. The Political System and the Reserve Bank
Keeping in mind how India is politically forged and structured, it is necessary to now introduce the government and a monetary system to provide direction to the economy, the type of currency regulation required and goals.
The Indian political and judicial system gained its structure from the British Constitutional Monarchy. There are two Houses in Parliament – the Upper House (Raj Sabhya) and the Lower House (Lok Sabhya) which is the seat of government formed by the ruling party and the opposition groups. The Supreme Court decides on the application of the Indian Constitution. The similarity to British politics ends here.
In reality, there are dozens of political parties under collective umbrellas. These groupings have no clear distinction as right or left in the sense used in European or American politics. Each political party in power to a considerable extent advocates socialist policies and needs be seen to be propping up the masses with a bloated public sector workforce that employs millions of workers for life in the style of the Soviet Union – else risks losing the plethora of local, state and federal elections.
There has been no real or meaningful attempt to reconcile the socialist protectionism policies with the operation of a badly needed capitalistic open market system attempted by bona-fide entrepreneurs. India has never understood or embraced a capitalist system as this would in very short time remove politicians from their base of power. Any successful politician needs to provide handouts to hundreds of millions that is seen as a reciprocation of the loyalty provided by the masses in return.
To pay for the massive government budget deficit from various social policies and the bloated public sector, the governments in India have consistently adopted to pursue an independent monetary policy (i.e. setting interest rates and currency devaluation) , a floating currency exchange rate (since 1993) and a closed capital account, in accordance with currency and trade limitations described by the Impossible Trinity (Policy Trilemma).
To meet the budget deficit as well as to repay external borrowings, the RBI’s policy has been to debase the Indian Rupee through massive base currency (M0) printing which is the standard approach of fiat currency systems. This ensures currency liquidity and solvency of the Public Banking Sector (PBS) run by the federal and state governments which actually provide the support to businesses and certain individuals. Printing currency in turn causes inflation which needs to be countered by high interest rates and a partially closed capital account to ensure sufficient equity does not leave India to cause imbalance (and further printing).
While India has recently provided hardly any restriction on the flows of equity, there are foreign direct investment (FDI) caps where debt flows are restricted via limits placed on the amount of government and corporate debt foreigners can buy in India. Overseas borrowings by corporate entities are also regulated by the central bank’s external commercial borrowings (ECB) policies.
The Rupee is allowed to float on International markets to allow convertibility – which is more efficient than using up Indian Forex (USD) reserves in trade. There is no substantial FDI in many sectors experiencing debt problems and with a high interest rate there is little chance of local investment for expansion to the economy. These measures are the primary reasons for the Rupee falling from 1:1 in 1947 to 1:68 in 2016 against the US dollar.
The Central Government of India and its various State legislatures are currently at about a 68% of GDP fiscal deficit, which is above the rational repayment threshold of 60% employed by the ECB. Fiscal deficit is defined here as the amount of borrowing the government has to resort to meet its expenses.
Measures to reduce fiscal deficits are
(a) Reduction of public expenditure from major subsidies, bonuses, LTC, leaves encashment, austerity and steps to curtail non-planned expenditure.
(b) Increase revenues from tax base, tax evasion, direct taxes to increase revenue, restructuring public institutions and sale of shares in public sector units.None of this is currently adopted as they reflect a non-populist extreme in governance and no political party is ready to risk doing so. This means that there is a large fiscal debt problem in India as a result of populist government policies that do nothing to provide a solution to the economic downward spiral for most of the population. India’s problem is actually worse than that in Greece, except that India is not constrained by monetary policies to enable a solution to the problems at hand.
6. Banking System and NPA’s
As of June 2016, the total amount of Gross Non-Performing Assets (NPAs) for 49 public and private sector banks is around Rs. 6 trillion or USD $88 billion. Non-performing and stressed assets of state banks and lenders already stood at almost 15% of total loans or 4.5% of GDP, compared to a figure of 5% in NPA that indicates highly-stressed banks. The country’s ailing state lenders need at least Rs. 1.8 trillion (USD $27 billion) or more to shore up their balance sheets and meet global capital requirements. (Bank repayment instalments overdue for more than 90 days are termed as NPA. The ratio of NPA’s to total loans given by a bank is a commonly used indicator reflecting the health of the banking system).
Secondly the large NPA’s were hidden through ‘cooking the books’ and were at toxic levels by the end of 2013. Lending to the steel industry accounts for around 10% of the NPA’s. The remainder is risk on venture capital and construction-related projects all over the country as a result of the current service sector economic boom and which were never repaid. Gross bank NPA is estimated at the levels in the figure below:
In 2013 the incoming Chairman of the Reserve Bank of India, Prof. Raghuram Rajan was tasked with finding a solution to keep the banks afloat as well as to reduce the impact of inflation from the massive printing of currency – which stood at 10.2%. Many expected him to print even more currency and raise the NPA caps to relieve the stress on banks and perhaps help them pass on the debts to others.
In his classic no-nonsense style, he informed the banks to shape up for future assistance from the RBI. This meant large amounts of hidden NPA’s to be made visible as well as putting in place ‘bad loan’ policies. The RBI actually reduced printing money to force the banks to pass stress tests. Within three years he was able to bring inflation down to 4.9% as the banks gradually absorbed losses without passing the debts on to their customers.
Prof. Rajan also insisted banks recognise stress in their portfolio early and classify them into special mention accounts (SMA’s) depending on the period of repayment delay. Banks were asked to form Joint Lenders’ Forum and address the problem as a group. In effect, the RBI forced banks to have a clear roadmap to clean up their balance sheets. He set a deadline of March 2017 for banks to clean up their books.
Prof Rajan unfortunately did too good a job – the banking sector in trouble were in most part the public sector state banks (PSB) run by lifetime government servants and unionists and their dissatisfaction on having to restructure made a huge impact on the ruling Bharata Janata Party (BJP). There were many heated exchanges between Prof Rajan and Narendra Modi – the incumbent Prime Minister. In June 2016 Prof Rajan did not seek an extension to his tenure and took up a positon as Chairman of the International Bank for Settlements – based in Washington DC. His replacement was a BJP loyalist who would advance the government’s position on RBI decisions and policy-making.
The Indian government needed at least Rs 1.8 trillion in hard currency to keep the PSB Ponzi scheme going – and growing. Printing high amounts of currency to bloat up PSB accounts was now a last option as a further devaluation of the Rupee would hit the economy very hard going into the next all-India election in 2019 as well as in many State elections before that. There was also a need by authorities to centralise control of the currency in circulation as the large shadow economy (by no means illegal) enabled currency to be kept outside the government banking system. Most of the currency loaned out or paid to workers never came back to the PSB so the capital from this source was not available.
In the name of addressing the bad loans problem that is threatening the stability of the banking system, the 2016 National Budget has thoroughly deregulated foreign investment and ownership norms in asset reconstruction companies (ARC) as well as elsewhere – and also provided them with tax breaks. ARC’s purchase the NPA’s issued by commercial and other banks and seek to recover these – usually they act like the Mafia bill-collectors. This does not help the problem but rather disguises the debt elsewhere well as provide legal fronting businesses and employment for criminal gangs. The very ‘black money’ that the government is supposed to be fighting.
The BJP was also not in a position to raise direct taxes, as this would cause distress to the borrowers from the PSB’s and further aggravate the bank NPA’s. Therefore the approach taken by Modi’s government was to cut direct and raise indirect taxes though VAT and point-of-sale (POS) systems. However this needed a control of the POS that was not possible in a cash-based economy.
The 2016 National Budget intends to mobilise additional revenue worth Rs 206 billion through indirect taxes. Direct tax cut proposals would entail a revenue loss of Rs 10 blllion, owing to the reduction in the corporate tax rate and other exemptions. Such reliance on indirect taxes for revenue mobilisation is basically theft from the destitute and relieves the higher income earners of their tax obligations as well as allowing the government to continue and increase their budget deficits.
Modi recently stated that India is now one of the most business friendly countries in the world. The code for this being lowering labour, environmental, health and consumer protection standards, while reducing taxes and tariffs and facilitating the acquisition of public assets via privatisation and instituting policy frameworks that work to the advantage of foreign (US/Western) corporations. He implemented an new level of foreign investment that required very little capital controls – which surprised even the RBI.
When the World Bank rates countries on their level of ‘Ease of Doing Business’, it means nation states facilitating policies that force working people to take part in a race to the bottom based on free market fundamentalism. The more ‘compliant’ national governments make their populations and regulations, the more attractive foreign capital is tempted to invest.
It was evident that India was economically a sick country with a very high reliance in job sectors that could leave for alternate destinations under external political or economic pressures. The banks were failing and required liquidity that needed drastic measures to be employed. This makes India ideal for what comes next.
7. Currency controls
US-President Barack Obama had declared the strategic partnership with India a priority of his foreign policy. China needs to be reined in. In the context of this partnership, the US government’s development agency USAID has negotiated cooperation agreements with the Indian Ministry of Finance. One of these has the declared goal to push back the use of cash in favour of digital payments in India and globally.
The press statement of October 14 2016 from USAID had announced the establishment of “Catalyst: Inclusive Cashless Payment Partnership“, with the goal of effecting a quantum leap in cashless payment in India. Catalyst “marks the next phase of partnership between USAID and the India Ministry of Finance to facilitate universal financial inclusion”. The statement does not show up in the list of press statements on the website of USAID (anymore?). Not even filtering statements with the word “India” would bring it up. To find it, you seem to have to know it exists, or stumble upon it in a web search. USAID and partners had analysed the situation extensively and found in the Beyond-Cash-report that 97% of transactions were done in cash and that only 55% of Indians had a bank account. They also found that even of these bank accounts, “only 29% have been used in the last three months“.
On November 8 2016, Indian prime minster Narendra Modi announced that the two largest denominations of banknotes could not be used for payments any more with almost immediate effect. Owners could only recoup their value by putting them into a bank account before the short grace period expired. Amidst all the commotion and outrage this caused, nobody seems to have taken note of the decisive role that Washington played in this. That is surprising, as Washington’s role has been disguised only very superficially.
Reading the press statements with hindsight it becomes obvious, that Catalyst and the partnership of USAID and the Indian Ministry of Finance, from which Catalyst originated, are little more than fronts which were used to be able to prepare the assault on all Indians using cash without arousing undue suspicion. Even the name Catalyst sounds a lot more ominous, once you know what happened on November 9.
Catalyst’s Director of Project Incubation is Alok Gupta, who used to be Chief Operating Officer of the World Resources Institute in Washington, which has USAID as one of its main sponsors. He was also an original member of the team that developed Aadhaar, the Big-Brother-like biometric identification system.
According to a report of the Indian Economic Times, USAID has committed to finance Catalyst for three years. Amounts are kept secret. The multiple coordination problems and the cash-ecosystem-issue had been analysed in a report titled “Beyond Cash” that USAID commissioned in 2015 and presented in January 2016. The press release on this presentation is also not in USAID’s list of press statements (anymore?).
It turned out in November that the declared “holistic ecosystem approach” consisted in destroying the cash-ecosystem for a limited time and to slowly dry it up later, by limiting the availability of cash from banks for individual customers. Since the assault had to be a surprise to achieve its full catalyst-results, the published Beyond-Cash-Study and the protagonists of Catalyst could not openly describe their plans. They used misdirection and were able to openly conduct the necessary preparations, even including expert hearings. They consistently talked of a regional field experiment that they were ostensibly planning.
“The goal is to take one city and increase the digital payments by up to 10 times – in 6 to 12 months,” said Badal Malick Vice President of India’s most important online marketplace Snapdeal, before he was appointed as CEO of Catalyst, less than four weeks before the ban. To not be limited in their preparation on one city alone, the Beyond-Cash-report and Catalyst kept talking about a range of regions they were examining, ostensibly in order to later decide which was the best city or region for the field experiment. Only in November did it become clear that the whole of India should be the guinea-pig-region for a global drive to end the reliance on cash.
What are the institutions behind this attack? Upon the presentation of the Beyond-Cash-report, USAID declared: “Over 35 key Indian, American and international organizations have partnered with the Ministry of Finance and USAID on this initiative.” On the website catalyst.org one can see that they are mostly IT and payment service providers who want to make money from digital payments or from the associated data generation on users. Many are veterans of,what a high-ranking official of Deutsche Bundesbank called the “war of interested financial institutions on cash” (in German). They include the Better Than Cash Alliance, the Gates Foundation (Microsoft), Omidyar Network (eBay), the Dell Foundation Mastercard, Visa, Metlife Foundation and many more.
Reading a statement of Ambassador Jonathan Addleton, USAID Mission Director to India, with hindsight, it becomes clear when he said before the ban: “India is at the forefront of global efforts to digitize economies and create new economic opportunities that extend to hard-to-reach populations. Catalyst will support these efforts by focusing on the challenge of making everyday purchases cashless”
As a ruse of combating ‘black money’, Modi was able to achieve his short term goal of a massive cash infusion into the banking system from the generational wealth of ordinary Indians. Cash and gold became illegal and seizures not seen since the British Colonial Era were conducted on everyone suspected of having any amount of wealth. The private sector cooperative banks that were used by the shadow economy are being completely destroyed by the currency freeze. Only the state sponsored banks could survive this crisis.
In real terms the BJP is in the process of terraforming India into what it thinks is a new era of currency control – and with new trade deals signed with the US and EU to revitalise the Indian economy, Modi now believes himself the saviour of his country and n international personality. The deaths and sufferings are just collateral damage – as the end justifies the means. This is unfortunately quite common thinking among politicians and bankers.
8. Modus Operandi
What the Indian population and especially their politicians do not realise is this ‘takeover’ was never about the shadow economy or banks or a cashless society. These were just means to a more frightening end. These measures are temporary controls which may be discarded when the time is appropriate. At that point in time there would be nowhere to run to – for India or for any other country.It is true Modi was acting on behalf of powerful interests. What exactly are these? When cashless control is in place – what next?
We don’t have to dig too deep to see where Modi feels at home. Describing itself as a major ‘global communications, stakeholder engagement and business strategy’ company, APCO Worldwide is a lobby agency with firm links to (part of) the Wall Street/US establishment and functions to serve its global agenda. Modi turned to APCO to help transform his image and turn him into electable pro-corporate PM material. APCO’s India brochure, there is the claim that India’s resilience in weathering the global downturn and financial crisis has made governments, policy-makers, economists, corporate houses and fund managers believe that the country can play a significant role in the recovery of the global economy. APCO’s publicity blurb about itself claims that it stands “tall as the giant of the lobbying industry.”
Mark Halton, former head of Global Marketing and Communications for Monsanto, seemed to agree when he praised APCO for helping the GMO giant to: “ … understand how Monsanto could better engage with societal stakeholders surrounding our business and how best to communicate the social value our company brings to the table….”
If your name is severely tarnished and you need to get your dubious products on the market in countries that you haven’t managed to infiltrate just yet, why not bring in the “giant of the lobbying industry?”
This opening up of India to foreign capital by Modi is supported by rhetoric about increasing agricultural efficiency, creating jobs and boosting GDP growth. Such rhetoric mirrors that of the pro-business, neoliberal dogma we see in APCO’s brochure for India and supported by neo-cons on both sides of the Atlantic.
APCO describes India as a trillion-dollar market. Note that the emphasis is not on redistributing the country’s wealth among its citizens but on exploiting markets. APCO likes to talk about positioning international funds and facilitating corporations’ ability to exploit markets, sell products and secure profit. In other words, colonising key sectors, regions and nations to serve the needs of an NWO-dominated international capital (currently Washington).
Anyone who is aware of the Knowledge Initiative on Agriculture and the links with the Indo-US Nuclear Treaty will know who will be aware that those two projects form part of an overall plan to subjugate Indian agriculture to the needs of foreign corporations (see this article from 1999). As the biggest recipient of loans from the World Bank in the history of that institution, India is proving to be very compliant.
The Indian economy is now being opened-up by Modi through the concurrent displacement of a pre-existing (highly) productive system for the benefit of foreign corporations. For farmers, the majority are not to be empowered but displaced from the land. Farming is being made financially non-viable for small farmers, seeds are to be privatised as intellectual property rights are redefined, land is to be acquired and an industrialised, foreign corporate-controlled food production, processing and retail system is to be implemented.
The long-term plan is to continue to starve agriculture of investment and have an urbanised India with a fraction of the population left in farming working on contracts for large suppliers and Wal-Mart-type supermarkets that offer highly processed, denutrified, genetically altered food contaminated with chemicals and grown in increasingly degraded soils according to an unsustainable model of agriculture that is less climate/drought resistant, less diverse and unable to achieve food security. This would be disastrous for farmers, public health and local livelihoods.
Low input, sustainable models of food production and notions of independence and local or regional self-reliance do not provide opportunities to global agribusiness or international funds to exploit markets, sell their products and cash in on APCO’s vision of a trillion-dollar corporate hijack.
But, regardless of the large-scale human suffering imposed as a result of demonetisation, it was expected to
a) provide a one-time cash infusion into the banking system – with a cashless POS system following not far behind
b) securing the interests of international capital, including the eventual displacement of the informal (i.e. self-organised) economy and
c) acting as another deliberate nail in the coffin of Indian society, driving them into a 21st century feudal systemThe business interests of the companies that dominate global businesses like Monsanto and payment systems like Catalyst are an important reason for the zeal to reduce cash use worldwide, but it is not the most important one. Another motive is surveillance power by proxy governments used as a NWO nexus – that goes with increased use of digital payments. Intelligence organizations and IT-companies together can survey all payments done through banks and can monitor most of the general stream of digital data. Financial data tends to be the most important and valuable. The final objective is to take control of the country through the political and financial controls already in-place.
German newspaper Frankfurter Allgemeine Zeitung has recently run a chilling story describing how that works (German). Employees of a Geran factoring firm doing completely legal business with Iran were put on a US terror list, which meant that they were shut off most of the financial system and even some logistics companies would not transport their furniture any more. A major German bank was forced to fire several employees upon a US request, who had not done anything improper or unlawful.
The Better-Than-Cash Alliance, which includes USAID as a member, is mentioned first for a reason. It was founded in 2012 to push back cash on a global scale. The secretariat is housed at the United Nations Capital Development Fund (UNCDP) in New York, which might have its reason in the fact that this rather poor small UN-organization was glad to have the Gates-Foundation in one of the two preceding years and the Master-Card-Foundation in the other as its most generous donors.
The members of the Alliance are large Institutions which would benefit most from pushing back cash, i.e. credit card companies Mastercard and Visa, and also some US-institutions whose names come up a lot in books on the history of the United States intelligence services, namely the Ford Foundation, the Clinton Foundation and USAID. A prominent member is also the Gates-Foundation. Also Omidyar Network of eBay-founder Pierre Omidyar and Citi are important contributors. Almost all of these are individually partners in the current USAID-India-Initiative to end the reliance on cash in India and beyond.
From Greece to Spain and from the US to the UK, we are able to see this rhetoric for what it really is: record profits and massive increases in wealth (ie ‘growth) for elite interests. For the rest – disempowerment, surveillance, austerity, job losses, the erosion of rights, weak unions, cuts to public services, bankrupt governments and opaque, corrupt trade deals. Finally – when the system breaks – a re-make of peoples to serve the greater purpose.
For India – The New World Order’s game plan appears on course. However the Indians are fighting back – starting early 2017. Demonstrations by Indians around the world took place and it may be the start of a new social uprising not seen since the demise of the British Raj. Not really a case of “make in India” anymore. More a case of eliminating the “Under New Management – signed: The New World Order”.
That may be a topic for another day.
End of Part 3 / Topic
Main Citations
https://www.theguardian.com/environment/1999/jun/19/food.food?CMP=share_btn_tw
http://www.globalresearch.ca/a-well-kept-open-secret-washington-is-behind-indias-brutal-demonetization-project/5566167
http://norberthaering.de/en/home/27-german/news/745-washington-s-role-in-india
http://www.bloombergquint.com/business/2016/11/09/the-beginning-of-the-end-of-the-parallel-economy-in-india
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