The world over is watching this mess to get a preview understanding of the immense damage and problems. On a positive note. Other nations can learn from the India experience and potentially avoid making similar mistakes. I’m amazed this Village Idiot still has his job and the attendant power. Some of our top analyst friends warned of capital controls years ago. They were right.
Replacing income tax with a banking tax would do the opposite of Modi’s stated goals. It will force much economic activity into the black/grey markets.
India Fears Run on Banks: Capital Controls and Withdrawal Limits to Continue
December 28, 2016
Indian banks are fearful of running out of cash as lines queue up to withdraw money.
Bankers say they cannot cope with any sudden increase in demand, and warn against lifting cash withdrawal limits.
A decision by New Delhi on November 8 to scrap all large-denomination banknotes overnight removed 86 per cent of India’s currency from circulation. In an effort to prevent banks running out of cash, the finance ministry then imposed strict limits on the amount of new notes that could be withdrawn. Customers can currently withdraw just Rs2,500 from an ATM per day — equivalent to $37 — or Rs24,000 over the counter per week.
“If the government lifts the limits on Friday and there is a sudden rush, banks will be totally dependent on the central bank to give them enough liquidity,” said Soumyajit Niyogi, associate director at India Ratings and Research. “The Reserve Bank of India has been giving assurances that it has enough cash but reports of how much currency there currently is in the system suggest this might not be the case.”
This reverse repo chart tells you there is something going on behind the scenes, the second highest level of reverse repos, which means huge collateral is needed! It also might mean a lot of positions in the bond market are underwater.