India’s cash problems have been making headline news for quite some time now. Several weeks after the most common banknotes were made invalid by the government; it appears things will only get worse. Modi’s initial “deadline’ of 50 days of troubles has passed, and the cash situation has only gotten worse over time. Unfortunately, this also means the problems are only just beginning.
More Trouble Ahead for India
With the national manufacturing rate contracting for the first time in 2016, last year did not end on a high note for India. Not that anyone expected things to turn out differently. Banning 86% of all currency in circulation overnight was not a good idea, and it has caused a lot of shockwaves ever since. Global demand for manufactured goods has not diminished by any means, but Indian companies cannot keep up with production.
One thing the cash ban has caused is a supply chain disruption. Additionally, customers have little to no cash in their pockets, which means they will spend less.Both are direct results of Modi’s decision to get rid of these banknotes, and the situation has not improved much compared to November of 2016. However, there is a silver lining to take into account.
ATM queues are becoming a lot shorter every day, and the limit for ATM withdrawals has been raised to 4,500 rupees. At the same time, the overall cash limits have remained the same, meaning Indians can only withdraw US$350 worth of their own money every week. Such a low influx of fresh cash cannot sustain the supply chains in the manufacturing industry by any means.
Access to cash is the determining factor as to whether or not the economy is returning to a normal state. For now, that answer remains “no,” and it is doubtful that will change anytime soon. It is only a matter of time until the economy collapses at this rate, as other countries will start calling in their debts shortly. Such a situation is not sustainable for the long run, and things will need to change sooner rather than later.
Bringing more cash to the Indian economy will not be easy. With the return of physical currency not restoring to normal for at least a few more months, the first half of 2017 will be critical for the local economy. The distress will continue, and the underlying problems are not being addressed just yet. The biggest repercussions are yet to come, and things are not looking good for India right now.
It remains unclear what this will mean for Bitcoin in the country, though. Demand is still growing, but there is only so much money to go around right now. Although Bitcoin providers a viable alternative to government-controlled currency one needs money to obtain it first. An interesting few months are ahead; that much is certain.
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