New Delhi, November 29: The Indian Economy has never before been scrambling so much to get back on its feet. The entire financial system was knocked down on the evening of 8th November when Prime Minister Narendra Modi decided to introduce the policy of demonetisation. In an address to the nation, Modi announced that the widely-used Rs 500 and Rs 1000 notes would no longer be legal tender. However, after nearly three weeks of coping with the situation, we are left wondering, did the Modi government manage to pull the wool over our eyes?
The Prime Minister’s argument was simple. Yes, demonetisation will cause some trouble. However, he’s asked citizens of the country to bear the brunt of demonetisation for 50 days in lieu of eradicating black money and counterfeit currency from the Indian economy.
Opposition parties have, of course, found the move simply unacceptable. From ultimatums requiring rollback of demonetisation to nation-wide protests, the opposition has tried every trick in the book to block the move. In fact, the issue has created such a ruckus that, in the two weeks since the commencement of the winter session of the Parliament, no work has been done and neither has any issue been tackled. The unfortunate part, though, is that the opposition’s protests seem to add on to the ‘deception’ being carried out by the government.
Protest for the sake of protest has never been of any use. Rather than intelligently countering the government and engaging in a debate over the merits and demerits of demonetisation, the opposition is simply making a lot of noise, thereby allowing citizens to presume that the government is actually on the right track. After all, the objectives presented by the government are indeed, laudable. So why then is demonetisation such a bad move? Is it simply the implementation that leaves something to be desired?
The prime target of demonetisation is unaccounted or ‘black’ money. The question really is, how much black money in India is held in the form of Rs 500 and Rs 1000 notes. The stories of notes being thrown into the Ganga or being burnt are fast hitting headlines. If pondered upon, though, it is the mere fact that the incidents are so rare that make them so epic. According to information released by the RBI, approximately Rs 8.11 lakh crore has been deposited in banks and Rs 33,498 crore (3 percent) has been exchanged since the launch of demonetisation on 8 November. This means that 60 percent of the currency has already entered the banking system within 21 days of the launch of the move. With a further, 31 days at hand, the remaining 40 percent is expected to trickle into the economy.
However, this data also means that the government must have already gripped its fists around some of the Rs 6 lakh crores that it was supposed to receive as windfall after demonetisation. This money was then supposed to be used to get rid of the Rs 3 lakh crore in bad loans that have been accumulated in banks so far. Further, the government had proposed heavy investments in public infrastructure. There were even rumours that Rs 15,000 would be deposited to every zero balance Jan Dhan account! However, though 60% of the money in circulation has reached the government’s hands, the windfall it was supposed to receive is nowhere near 60 percent.
In fact, the chunk of change that was to be received seems to have turned into a handful of pennies as the government is now devising new ways to capture black money. Just yesterday, Finance Minister Arun Jaitley today tabled the Income Tax Amendment Bill in the Lok Sabha. The bill aims at targeting the method of taxation on unaccounted wealth. According to the details that have emerged, a person with unaccounted deposits will have to pay 50 per cent of the amount including tax, penalty and Pradhan Mantri Gareebi Kalyan cess. Further, if the unaccounted wealth is undisclosed, the net rate payable to the government would mount up to 85 per cent. The question is, if demonetisation was supposed to eliminate black money, why is this amendment even necessary?
Added to this, is the truth that a huge chunk of the Indian black money lies abroad and hence, out of the government’s purview. There is also the question of counterfeit currency. The Rs 1000 note was fully inducted into the economy only in 2001. According to credible government data, it took Pakistan less than 5 years to replicate the high-value banknote and flood the Indian market with it. Even if the new notes have added security features, for a malicious country that even copied its nuclear weapons programme from other countries, how difficult can the task of counterfeiting paper currency be?
This means, that to prevent illicit funding for terror-related activities, the government has to either demonetise notes once in every decade or find other means of dealing with the menace. Further, the political motives of the government seem doubtful. Was there really a need for demonetisation right now? The government had already launched amnesty measures for black money holders that it touted as being successful. If demonetisation was deemed necessary, all earlier measures against black money fail by default.
It seems as though, the necessity of demonetisation was not fuelled by the rising issue of unaccounted money but rather by a governmental term almost 2/3rds over that had failed to achieve its objectives. It appears as if demonetisation was merely a measure for indicating the intention to achieve something rather than actually generating a clean economy.
Another significant point is that most of the black money in India is held in property and gold markets. The two have gained a notoriety for hiding unaccounted wealth. In such a case, wouldn’t it be more prudent to target these two sectors than the actual banknotes? The Central government will sooner or later have to step in and legislate that all transactions in gold and property go through banks.
In conclusion, there really is no guarantee that demonetisation will achieve any desired goals. If the move was to be summarised in one line, demonetisation would be deemed a method for the government to garner goodwill, while the opposition gets a free piggy back ride. However, for the sake of the numerous hours that you and millions of other citizens have spent in serpentine bank and ATM lines, we hope that demonetisation will somehow manage to pay its dues.
(Disclaimer: The views expressed are of the writer alone)