And lastly, counterfeit notes circulating in the economy is estimated to be in the region of 400 crores out of a total of sixteen lakh crores. In percentage terms it amounts a mere 0.03% of the entire currency. A sensible policy practiced by most governments is to gradually phase out certain notes with certain serial numbers to lessen the dangers of counterfeiting instead of firebombing the currency.
There is no gainsaying that by rendering 86% of the currency as paper trash and carpet bombing the informal sector dependant on cash, the demonetizing of currency can best be described as a quixotic venture. Or is it a dress rehearsal for something more ominous in the form of draconian capital controls preventing physical withdrawal of cash from banks? Is the lack of availability of currency on account of "poor planning" or a manufactured crisis for the Government to push its agenda for a war on cash?
Before we discuss this issue we have to take a snapshot of the Indian economy. Beneath the rosy headlines of robust GDP growth rates the fact remains that the growth is fueled by expansion of credit and not incomes from steady job growth which in a state of decline. The top corporate elites have borrowed heavily from public sector banks without any hope of paying off the debt. The public sector banks are groaning under the weight of corporate loans which may never be paid. The real estate sector of the economy is primed up with bank loans and credit expansion. The stimulus to the economy is through easy access to credit for consumer spending. Thus an illusion of prosperity is maintained on a mountain of credit.
The crisis point in the Indian economy has reached as credit induced asset bubbles are in imminent danger of imploding unless there is fresh induction of credit into the system. The Indian economy is in a danger of deflationary spiral and the credit ponzi scheme has to be maintained through the expansion of demand of new credit money. But limit to credit expansion is hitting the proverbial road block as there are few lenders and few takers of credit as business confidence is low and the much lauded animal spirits is in short supply. As Nicole Foss observes "Natural limits for both borrowing and lending threaten the capacity to prolong the credit boom any further, meaning that even if central authorities are prepared to pay almost any price to do so, it ceases to be possible to kick the can further down the road. Negative interest rates and the war on cash are symptoms of such a limit being reached. As confidence evaporates, so does liquidity. This is where we find ourselves at the moment -- on the cusp of phase two of the credit crunch, sliding into the same unavoidable constellation of conditions we saw in 2008, but on a much larger scale."[v]
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