For almost seven decades since independence, India has been grappling with the menace of black money [and corruption]. Despite political parties of all hues making lofty promises to stem it, it has only increased leaps and bounds assuming monstrous dimensions.
Prime minister, Modi who was catapulted to the seat of power on the promise of rooting out this menace [besides delivering good governance and inclusive development] has taken several credible steps viz., plugging loopholes in existing laws/enacting new laws, streamlining procedures /processes and cutting bureaucratic red tape to curb its generation. These efforts continue unabated.
Meanwhile, a huge stock of black money already existing in the economy [courtesy, rampant corruption and mis-governance in the past especially the period 2004-2014, better known as a decade of scams] has been hampering his efforts to deliver on development and adequately fund welfare schemes for the poor.
This money – held by a few lakh persons – was also at the root of bribing bureaucrats/politicians, splurging expenses on elections [including bribing voters], flourishing hawala market, money laundering, skyrocketing real estate prices, drug trafficking, counterfeit currency etc leading to social imbalances and law and order problems.
To deal with it, on November 8, 2016, Modi made the historic announcement of scrapping 1000 and 500 rupee notes which account for about Rs 1400,000 crores worth of currency in circulation, a substantial slice of this being black money [@25% or Rs 350,000 crores, according to one estimate].
By killing the 1000/500 rupee notes, at one stroke of the pen, Modi has made a big onslaught on all the mentioned evils while at the same time, fully protecting genuine and honest persons holding cash in these high denomination notes. They have been allowed to deposit this cash in their bank accounts without any limit and this facility is available till December 30, 2016. However, deposits in excess of Rs 250,000 will come under I-T lens as these could be un-disclosed income.
Reportedly, government is contemplating 20% penalty for those who declare in their I-T return for current year and 55% for those who do not. This won’t be fair to honest tax payers. What if all those having un-disclosed/un-explained income declare in their return for assessment year 2017-18? Under the above proposal, they will get away by paying 50% [tax plus penalty].
Therefore, the deterrent has to be sufficiently strong i.e. penalty of 200% on income that was generated in the past but no tax was paid. This will ensure that all of such money will truly be worthless paper serving the real purpose of demonetization. The corresponding amount will be surplus in the hands of RBI/government.
These resources plus the money of honest persons coming to banks until hitherto lying dormant can be used for building roads, highways, homes, schools, hospitals, bridges, irrigation etc and funding a host of other development projects. All of this will create more jobs and increase incomes. This in turn, will have a multiplier effect by boosting aggregate demand, growth and higher tax revenue. Clearly, the measure is in the long-term interest of India.
In the near-term however, there is bound to be a dip in economic activity. This is because at present, a large chunk of transactions especially in ‘informal’ sector and agriculture are cash driven and with nearly 86% of cash [portion held in 1000/500 notes] flushed out instantaneously, it will take some time to get replenished.
The third quarter of current year viz., October–December, 2016 could experience a significant decline in growth. This will bring some miseries also including loss of jobs. But, the situation will stabilize from fourth quarter [January-March, 2017] when currency replacement is done in full. From beginning of next year, we can look forward to a substantial upsurge in growth.
Not just that, there is a real possibility of double digit growth on sustained basis over the long-term. The basis for this optimism stems from many more projects [Modi has already alluded to] to unearth black money existing in real estate, bullion etc, move towards “less cash” eventually leading to “cash-less” economy, massive increase in investment [initially led by government then, private sector] and tax buoyancy propelled by GST from April 1, 2017.
Unfortunately, the vested interests [all those who hold black money and were involved in scams] are leaving no stone un-turned in sabotaging this revolutionary step of Modi – government. They are harping on the current set-back in economic activity which is inevitable in such a mammoth operation; prime minister is fully aware of and even alluded to in his November 8 address to the nation.
In the name of “alleged” sufferings of people, all opposition parties have united [even ignoring their animosity towards each other] in not allowing the parliament to function breaking all democratic norms. It is sickening to see them lambasting Modi for alleged ‘authoritarianism’ [simply because he refuses to dance to their tune], saying all that they want to say and yet not letting the finance minister [he is available in the house round the clock] even speak.
Though Modi made the first statement on demonetization of 1000/500 rupee notes but the entire operation [read ‘implementation’] is being commandeered by the finance minister. He is the best person to talk on the subject and answer all their questions. Yet, opposition is adamant on prime minister sitting all through [literally want to hold him hostage] listen to every speech and answer all their questions.
They have not desisted from using even former prime minister, Dr Manmohan Singh to castigate the move. Dr Singh opined “GDP will decline by 2%”. He branded this as “organized loot and plunder” of common man. He termed its implementation as ‘monumental mis-management’. These are certainly not the words of an economist in him; indeed, he was only echoing his master’s voice!
They are using all means [including misuse of a large section of media] to instigate people against the measure and discredit the government. The so called “Aakrosh” rallies/Bharat bandh held on November 28, 2016 in different parts of the country is one such manifestation of their larger game plan [it is a different matter that this has been a super-flop as public refused to get carried away].
Thus far, despite inconveniences, public has stood by the prime minister and his decision. This is because it is convinced about the long-term gains that will accrue from curbing black money. It must remain un-wavering in its resolve refusing to play ball to machinations of vested interests. It must ensure that Team Modi succeeds in its mission to completely free India from scourge of black money.