The mirage in the Indian economy.

After months of speculation the Reserve Bank finally released figures for the number of notes returned due to demonetization. Out of a total of 15.44 trillion Rs 500 and Rs 1000 notes in circulation 15.26 trillion notes have been returned, which is 98.96%. The government had estimated that at least Rs 3 trillion worth of notes, imagined black money in circulation, would not be returned and the then Attorney General claimed that the figure would be as high as Rs 4-5 trillion in front of the Supreme Court. Another claim was that all the fake notes in the system would be neutralized in one fell swoop. The hope was that since fewer notes would reduce the outstanding balance of the RBI the bank would transfer that amount to the treasury, which would allow Modi to embark on an orgy of handouts to win elections. Only Rs 160 billion remains outstanding and the number of counterfeit currency received was a paltry 0.0007% of the total. Over 5 million jobs in the unorganized sector may have been lost and prices of farm products crashed, causing massive loss to farmers. With farmers committing suicide a panic stricken BJP, the party of the Prime Minister, returned to the old placebo of loan waivers. This will raise fiscal deficit so it is resorting to the old practice of trying to force the RBI to hand over all its surplus, to balance its books. Which means that the bank will not have enough funds in an emergency. Why have all the notes come back? Prof I Patnaik listed the number ways people laundered their black money. Poor people were paid to stand in queues in front of banks for hours to exchange old notes for new. Money launderers tied up with bank officials to convert black money into white and thousands of shell companies showed cash on their books to make it seem legitimate. After all, people would rather lose 30% of their money in paying launderers than lose all of it. Naturally, the sudden confiscation of cash led to a sharp contraction in economic activity and GDP growth fell to 5.7% in the first quarter of April-to June. The other major change that was introduced from 1 July was the Goods and Services Tax, or GST, which was supposed to unite all indirect taxes into one rate. We were told that GST was going to bring down the tax burden on consumers and growth will zoom because of increased consumption. Turns out that the government has collected Rs 922.83 billion in taxes, while the estimate was for Rs 910 billion. If GDP has fallen how has consumption increased so much? The tax rates under GST were calculated to be revenue neutral, which we thought, meant that they would not be higher. But actually, it meant that the government should not get any less tax, so the rates are so high that collections have increased despite a fall in economic activity. Real specimens, aren't they?