Ever since the proclamation by prime minister, Modi on 1000/500 note ban on November 8, 2016, the opposition parties have unleashed a ‘no-holds-bar’ and virulent campaign against the move – both inside and outside the parliament. There is no theme or objective behind this campaign.
Even as virtually none from among the public standing in the long queues in front of the banks is complaining [indeed, majority of them have welcome the move and are prepared to live with some inconvenience], almost every parliamentarian in opposition camp wants the world to believe that they are suffering a lot. Sadly, a section of media is lending credence to what they say.
There is an urgent need to look at the dynamics of the operation. Under focus here is ‘declaring as invalid’ [or demonetization] close to Rs 1500,000 crores worth of currency held in 1000/500 notes and its replacement [or re-monetization] by new notes; how much would depend on a host of factors including the extent to which economy can be geared to become cashless etc.
For the operation to be successful, a core requirement was ‘absolute secrecy’. All those who are harping on what ex-prime minister, Dr Manmohan Singh described as ‘monumental mis-management’ need to realize that full scale preparation [keeping all bank branches and ATMs loaded with new currency] before announcement would have seriously compromised on secrecy for sure. This would have defeated the very purpose viz., catching hoarders of black money by surprise.
Therefore, a big chunk of the operation especially those areas touching base with larger public [re-calibration of ATM machines etc] was kicked off only after the announcement. Modi sought only 50 days to put everything back on track. The proof of pudding is in eating. RBI has pumped in Rs 380,000 crores of new currency in a month which is higher than currency induction during last 3 years.
The government has also responded to genuine concerns of public with alacrity besides taking prompt steps to nullify hoarders attempts to convert black cash to into white. True, it had put restrictions on withdrawal [unfairly termed by opposition as as ‘financial emergency’] but that has to be seen in the backdrop of huge mismatch between currency that was sucked out [86% of total cash] and what was pumped in despite replenishment at momentous pace.
A logical corollary is disruption of economic activity especially in ‘informal’ sector where almost all transactions were done in cash. But, this is for a few months only [two quarters at the outer limit]. The growth will bounce back from April, 2017. Yet, the critics are playing on this transient disruption – pouring mountain of rhetoric – to somehow force the government to roll back.
On completion of a month since demonetization, about Rs 1150,000 crores [out of a total of Rs 1500,000 crores] has come back to the banks. Latching on to a statement by revenue secretary that more of old notes will flow in, the opposition is now alleging that the purpose of exercise has been defeated. They aver that the figures point towards non-existence of black money and that the government has unnecessarily exposed the poor to hardship. This is flawed logic.
First, to surmise that the entire cash of Rs 1500,000 crores would come back is to proclaim the end result before D-day in a manner that suits critic’s argument. Even so, Rs 1150,000 crores may be inflated due to some ‘duplication’ as alluded to by SBI [State Bank of India] research team. As on December 30, 2016, a good slice of cash will remain with public. Without doubt, this is black money and hence of zero value. To that extent, it will be RBI’s gain and the apex bank can print equivalent new currency and transfer to the government.
Second, humongous amount of black money has been deposited in banks on the assumption that this will automatically become white. The assumption is flawed. Any deposit above Rs 250,000/- will come under I-T lens. Among those, who declare but are unable to explain source of income will have to pay 50% as tax and additional 25% will be blocked for 4 years under Pradhan Mantri Garib Kalyan Yojna [PMGKY] on which no interest will be paid. Those who do not declare and get identified by I-T will have to shell out a total of 85%.
Therefore, it is preposterous to argue that hoarders have been allowed to go scot free; that Modi – government has entered in a 50:50 deal with them. That would have been the case had latter not acted in time by amending the I-T Act which in its extant form allowed a person to declare un-disclosed income as ‘windfall’ during current year and get away by paying 30% tax.
Team Modi deserves full praise for first prompting hoarders to bring their black cash to banks [courtesy, demonetization] and then, plugging the loophole in the law to make them pay heavily. Further, having come under bank/I-T surveillance, they will be forced to pay tax on their future incomes perpetually.
Clearly, prime minister is well on his way to fully achieve the objective behind demonetization. The hoarders of black money have been trapped from all sides. Those who decide not to deposit their black cash will be left with worthless piece of paper. And, those who do will be taxed heavily and will be forced to disclose income and pay tax in the future as well.
The government will use resultant surge in revenue for investment in building roads, highways, ports, rails, schools, homes, hospitals etc besides funding a host of welfare schemes for the poor. These medium to long-term benefits far outweigh the pains for a few months only till the economy settles at its new normal.
To make this mission a success, the public must remain steadfast in its support to Modiji and not get carried away by fallacious propaganda/campaign unleashed by hoarders of black cash and their sympathizers in the political class.