One day morning, my maid informed me that a lady in another flat in the cooperative society [where I live] had offered her Rs 50,000/- to deposit in her account which should be returned in due course. She wanted my advise as to what she should do? I told her emphatically not to fall prey to such machination.
The issue brought to my attention is resonating in millions of homes all over India. After prime minister, Modi announced on November 8 [8 PM], 2016 demonetization of 1000 and 500 rupee notes effective from zero hours of November 9, those holding un-accounted income/wealth or ‘black money’ [as it is known in common parlance] have been desperately look for means to convert it in to white even while escaping government’s surveillance radar.
With most of other avenues either closed or having the potential to put them in a vulnerable/risky zone [for instance, if a person deposits in excess of Rs 250,000/- (the threshold to address genuine problems of honest persons) during the 50 days window available till December 30, 2016, it will come under the I-T lens], a black money monger finds this to be a ‘safer’ and ‘convenient’ option.
While, the maid under reference showed some wisdom, millions of illiterate from her class and others viz., car cleaners, plumbers, electricians, workers on construction sites [even beggars] etc have fallen prey to such tactics/skulduggery employed by hoarders of illegal wealth. This is also evident from finance minister, Arun Jaitely confirming reports of hundreds of crores being deposited in accounts of poor under Jan Dhan Yojna [JDY].
Jaitely has promised strict action against all those involved in JDY scam as also persons committing other violations such as purchase of jewelry/gold with 1000/500 notes [even after their ‘demonetization’], exchanging these with foreign currency or leveraging exemptions viz., purchase of railway tickets in bulk – followed by refund – with the sole aim of converting black in to white.
Apart from these aberrations, the common man is also facing problems in getting necessary cash for meeting his daily requirements [more inconvenience for those who have marriage or other functions lined up in these days]. But, that should not obliterate our vision in regard to what this reform measure has in store for us.
This path breaking decision is ‘unparalleled’ in the financial history of India. Even as it will decimate the existing stock of black money and associated ills, the real benefits will accrue in the medium and long-term. It has the potential of drastically altering the economic, political and social landscape of India albeit for the betterment of all citizens especially for poor.
Under prevailing systems and governance architecture for close to seven decades, a few hundred thousands persons alone had a chance to prosper [exponentially] even as majority of population continued to remain below subsistence level. The unabated aggrandizement of the former was propelled mostly by un-accounted/black money.
A most painful manifestation of this is that the rich/super-rich frowns upon poor/downtrodden and latter looks for short-cuts to get rich. The situation had degenerated to a level whereby the status of a person in the society gets identified with how much wealth he/she has irrespective of the values cherished [honesty, integrity etc] by him and his/her educational background.
1000/500 rupee notes account for nearly Rs 14,00,000 crores of cash in circulation and bulk of this is black money. By scrapping them, all of this will be turned in to worthless piece of paper sans notes which were earned via honest means but kept at home for meeting current needs [that is allowed to be deposited in bank account up to a limit of Rs 250,000/- or exchanged for new notes @ Rs 4000 per day].
At one stroke of the pen, this gives a big push towards an ‘egalitarian’ society and will help immensely in bridging the social divide. Already, it is hugely satisfying to witness a person with tons of black money ever willing to put thousands of rupees in the account of poor or sons/daughters depositing hefty sums in the account of their long ‘abandoned’ parents in 70s/80s.
On the economic front, there will be a big boost to an extent cash does not get deposited or exchanged for new notes. The precise figure would be known only by December 30, 2016. However, assuming that 50% of cash does not come back, this means that Rs 700,000 crores worth of RBI liability would be extinguished. Put differently, it bolsters assets of apex bank by that much.
The RBI can then, transfer this amount to public sector banks [PSBs] which would be enough to fully offset their non-performing assets [NPAs]. PSBs in turn, can lend to industries and businesses for increasing investment and propelling growth.
In short, money [read black] that was lying dormant or used for un-desirable acts like hoarding of in real estate/homes, essential items [e.g. pulses] etc will be channeled in productive uses leading to higher growth and more jobs. Higher tax revenue will help government adequately fund all welfare schemes for the poor such as MGNREGA, mid-day meal, NRHM, Food Security Act etc besides investing in roads, highways, port, rails etc.
The decision will also give a big fillip to Modi’s efforts to rein in corruption. The bribe money given to seek favors from corrupt officials/politicians is invariably in cash [albeit] unaccounted. When, the mountain of cash that bribe givers set aside for such acts has been reduced to ashes, corruption will automatically get eliminated.
As regards piling of cash afresh to fund bribe in future, the government has closed most of the loopholes in the system by making governance policy driven, reducing discretionary powers of bureaucrats and increasing reliance on e-based systems for approvals and payment. The GST slated for introduction from April 1, 2017 will strike the last nail in the coffin.
At the political level too, with the decimation of 1000/500 notes, impending elections in UP, Punjab, Goa etc will be largely free from influence of money power. This will hold for future as well in view of substantially reduced scope for black money generation and progressive shift to non-cash economy.
Team Modi deserve all praise for taking this decision that required tremendous ‘courage’ and ‘fearlessness’. It is good to see the public coming out in full support despite the discomfort/inconvenience for now as it is fully convinced about its long-term benefits.
Fantastic step taken by Our Great PM Modi, Despite a little glitch every true and honest citizen of India is in full support with this enormously righteous step.