The menace of blackmoney has been discussed but dealt with a piecemeal approach. The bold move of demonitising 500/1000 notes will be a game changer
Bhagwati Prakash Sharma
Vast masses across the country, living on their honestly earned income and without any illicit wealth, are rejoicing and appreciating the historic move of Narendra Modi government demonetise Rs 500 and Rs 1000 currency notes, from midnight November 8, 2016 to curb the black money and counterfeit currency, possessed and circulated by terrorists and unscrupulous elements. People, having any lot of fairly earned cash in such higher denomination notes can fearlessly deposit in banks. It would be credited onto their account, they may issue cheques and pay by card or even can draw cash from November 11. For any immediate need for petty cash every person can exchange up to Rs 4000 daily from any bank branch or post office. This deposit of idle cash will increase bank deposits, making more money available to banks to lend for economic activities. Elimination of black money from circulation would indeed lead to deflation, curb inflation and increase the value of money, as the supply of currency would go down in relation to the commodities and things that are available in the market.
However, people who have illegally earned wealth and stashed into such higher denomination notes cannot do so. There are people in the country, with crores of cash, either as black money or earned dirty money through illegal ways like from bribery, smuggling etc. or corrupt politicians having black money and terrorists possessing counterfeit currency, infused from Pakistan, have reason to express anger.
The move is so unexpected for all such people, who had no time to remove or adjust their black money. So this banned currency would become simply a waste of paper for them. There could be no better move than this to eliminate black money from the country. It may have caused some spontaneous discomfort for a day or two to many. Yet, it was most imperative to weed out black and dirty money. It may also cause slow- down for a while in certain sectors, thriving on black money like real estate, construction, film industry, tourism etc. in the short run. Even people employed in such sectors like masons, plumbers, electricians and so on may feel the brunt of slowdown for a short while into these sectors. In the short run, though the Indian stock markets too have fallen a bit more than other emerging markets in Asia. The S&P BSE Sensex is down 3.8 percent, which is more than more or less all other Asian emerging markets.
But, to the contrary it would have several positive impacts: (i) The sale of gold and diamond jewelry would drastically decline to curb outgoing of foreign currency for ensuring a better balance of payment situation. (ii) Corruption would be reduced drastically. (iii) Credit card and other legal transactions would go up. (iv) Taxes (Income Tax, Excise, Service tax and Sales Tax) would go up substantially since more transactions would be in white and improve our tax-GDP ratio. (v) Criminal activities would greatly reduce. (vi) More funds would come into circulations. (vii) Use of illegal money in elections would be reduced drastically. (viii) Inflation would be curbed and overheated property rates would reduce drastically to help common masses to get a house at more affordable price.
So, the subsequent economic boomerang in the economy would be much more widespread and perpetual to last long for the benifits of all sections of the society. The money being used in hoarding and black marketing would be wiped out and idle capital lying at home would come over surface to add growth, generate jobs, raise incomes for masses and revenue for the exchequer to be spent on welfare, infrastructure, defense and so on. Introduction of GST would soon bring further unprecedented turnaround in the government revenues and growth in the economy.
As an economy we should aim to go with less-cash. Cash facilitates crime, because it can be anonymous and big bills are easy to carry. The new Rs. 2,000 bills have been designed with enhanced security features, so this is not just new money replacing old money in the system, but more secure currency.
It is third attempt to wipe off black money and corruption in India by selective demonetisation of higher denomination notes. First time in January 1946 Rs 1000, Rs 5,000 and Rs 10,000 notes were taken out of circulation a year and a half before the country won Independence. All three notes were reintroduced in 1954. In the early 70s, the Wanchoo committee, a direct tax inquiry committee set up by the government also suggested demonetisation as a measure to unearth and counter the spread of black money. But, Mrs. Gandhi could not dare to do so. Then, in 1978, the Janta Party government of Morarji Desai chose to crack down on counterfeits and black money by passing the High Denomination Bank Notes (Demonetisation) Act, on January 16, 1978 and removed the Rs. 1,000, Rs. 5000 and Rs. 10,000 notes.
On October 28, 2016, the total currency in circulation in India was Rs. 17.77 lakh crore. In terms of value, total bank notes in circulation valued to Rs. 16.42 lakh crore of which nearly 86 per cent i.e. Rs.14.18 lakh crore was 500 and 1000 rupee notes. In terms of volume, 24 per cent i.e. 2,203 crore of the total 9,026.6 crore banknotes were in circulation. Moreover the supply of notes of all denomination has increased by 40 per cent between 2011 and 2016. The 500 and 1000 rupee notes increased by 76 per cent and 109 per cent respectively in this period owing to counterfeit money. This was used to fund terrorist activities against India.
The timing of this announcement is most appropriate, when the massive rollout of the Pradhan Mantri Jan-Dhan Yojana (PMJDY) in India, citizens’ access to bank accounts is almost complete. The government has also brought the twin income disclosure schemes, where people were given an opportunity to declare black money. Inspite of India being a USD 2.3 trillion economy, in the twin income disclosure schemes of 2015 and 2016, less than Rs. 4147 crores and Rs. 65250 crores were declared. While in Indonesia, which is only a USD 900 billion economy, and USD 379 billion (equal to Rs. 25, 40, 00 crores) were declared as black money. So, vast sum of black money would now get eliminated.
Just a day after Prime Minister Narendra Modi announced scrapping Rs 500 and Rs 1,000 bank notes, the move was challenged in the courts. But it would be in vain. Sangam Lal Pandey, an Uttar Pradesh-based lawyer, has moved the Supreme Court seeking quashing of the Reserve Bank of India (RBI) notification scrapping the high-value notes. But the Centre too has filed a caveat in the Supreme Court that it be heard if the court entertains any petition on demonetisation of Rs 1,000 and Rs 500 notes even as the apex court indicated that it may hear on November 15, the plea challenging the government decision. Even politicians like Kejriwal and Rahul Gandhi are also up in arms. But, inspite of all such minor hurdles, India would gain economic resurgence as the piles of black money are now finally out of circulation.
( The writer is Vice-Chancellor of Pacific University, Udaipur)