– Shshank Saurav –
Lot of water has flown into the Yamuna since November 8 when Narendra Modi announced demonetization of Rs 1,000 and Rs 500 currency notes.
Nobody can deny that public is
facing issues in exchanging the old notes and there are long ques at the banks. The issue got aggravated due to drying up of ATMs and prima facie it appears that either the government didn’t estimate the scale of chaos which can emerge out of this decision or they lacked preparedness. However it must be understood that every big decision has an impact on the routine life of
common man and the best example is “odd-even” scheme launched by the Delhi Government which drove away almost half of the vehicles out of the road and public was left with no option but to rely on public transport with huge rush at stations and bus stops.
Public is panic but this is not due to demonetisation per se and transitional problems are for short term but this
initiative will have a lasting impact over entire economy. Panic and chaos is
primarily due to under preparedness of the government agencies and the fact that 86 per cent of currency in
circulation is going to be withdrawn from the market should have been given a proper thought while considering this decision and availability of currency notes of smaller denominations should have been ensured to avoid the
inconvenience. However there is another part of the story that media
is exaggerating the issue and
disproportionate reporting is adding fuel to the fire which is evident from the fact that a leading English daily published corrigendum for misreporting an incidence in Mumbai. In nutshell it’s a short term pain which is worth taking for long term gains.
There are no differing opinions that demonetisation will wipe out the
counterfeit notes from the economy and will also impact the terror financing which is thriving on smuggling, hawala and similar other illegal means. This entire exercise is branded as a war on the black money and outcome of this exercise will be known only after closure of the time limit given for exchanging the old notes. However there are certain points which needs to be looked upon before declaring that demonetisation will wipe out the ill gotten money:
l A data published by Income Tax department few years back shows that only 6 per cent of the black money is in the form of cash and large part of
ill-gotten money is invested in real estate, bullion and other assets. This
crackdown will help checking the
circulation of black money to some extent but it can’t stop further generation of black money which is parked in various assets including benami properties.
l As per the data given by RBI, approximately little more than 3 Lakh Crores (25 per cent of overall 1000/500 notes) of old currency notes were exchanged at bank & post office
counters in first four days. Going by this trend it appears that the informal
estimate of wiping out 5-6 lakh crores of the overall 14 lakh crores may not be achievable.
l It is witnessed that persons being hired to exchange old notes on
commission basis and there should have been proper check (like introducing ink mark on finger) to ensure that illegal money is not getting recycled.
l Currency withdrawal is going to hit hawala operators badly because they keep hard cash with them and that too of higher denominations. However they can also recycle part of their holdings by hiring middlemen.
Apart from the temporary disruption in the economy, there is a fear that
currency withdrawal will impact the demand in the already sluggish consumer market. However price correction is expected in the real estate and bullion market in the medium term. Capital
formation process is expected to
accelerate as idle money will come to the banking channel which will improve the liquidity. An increase in saving: GDP ratio is also expected in this financial year. Demonetisation will encourage the use of plastic money which leaves trail and thereby puts an automatic check over generation of black money.
In 1927 US Supreme Court said in its judgement that “taxes are what we pay for a civilized society”. Tax base is already very small in India and it is
reasonable to expect that everyone is abiding the law and discharging his obligation. When a common man is paying the full value to the trader while purchasing any goods/services then there is no point not taking that revenue to the books and not remitting the
government’s share to exchequer. The government gave an opportunity to come clean by September 30, 2016 and this step will send a clear message that non-compliance and evasion can’t be taken for granted. Business community has no reason to fear at all if they are complying with the law of land.
Winter session started from November 17 and political leaders from almost entire Opposition cutting across political ideology have come together to oppose the move taken by the
government. This rare show of unity is absent when it comes to raising issues of national interest and this attitude raises suspicion that all those who oppose this move must be involved in wrongdoings and they are fighting tooth & nails not in the interest of common man but to save themselves.
Government is doing its best to address the concerns raised by various sections of the society (e.g. allowing withdrawal of Rs 2.5 Lakhs for marriage purpose, enhancing the threshold limit of withdrawal for farmers etc.). Even services of air force are availed to transport currency notes to different parts of the country. Common man and poor of the country is not getting affected from this decision because at first the poor don’t have the black money and secondly the government has allowed them to exchange their hard earned money. Assurance given by finance minister that deposits up to Rs 2.5 Lakhs in account of any individual will not be examined by the tax
authorities is enough to explain the intent of this move which is not to harass the people (as propagated by the Opposition) but to go for a hunt against those who are pocketing the government’s tax or
making money out of illegal means (like terror outfits, Naxalites etc.). Use of money during election is the root cause for black money generation because the politicians have to oblise the donor. Thankfully Modi government is taking up the matter related to electoral reforms for discussion (like holding state &
parliamentary elections simultaneously). There is a point to ponder that opposition is asking for rollback of the decision relating to currency withdrawal instead of pressurising the government to speed-up the exchange process! If there is nothing to hide then why are politicians ganging up against the decision itself rather than asking for a smooth transition? The point of debate should be what all tangible & intangible benefit our country will have due to this move but the attitude of the opposition is giving an impression that hell with the country, we just want to save ourselves & our associates from the wrath of the law. Definitely the country is going to get some tangible benefits in the form of extinguishment of currency not deposited within the due date and topic of debate should be how this money should be used (like giving relief against farm loans, mopping up infra investment etc.).
Statement given by emotionally choked PM in Goa that currency
withdrawal is not the end and benami transactions are the next target shows the decisiveness & determination of the man sitting at the helm of affairs.
(The writer is Chartered Accountant and Anti-Money Laundering Specialist)