A great deal of misinformation is being spread by vested interests to demonise demonetisation. Positive results of the Government’s courageous move will be seen soon
A couple of days ago, Revenue Secretary Hasmukh Adhia had alluded to a good chunk of over Rs15,00,000 crore cash embodied in Rs1,000/500 notes (these were declared invalid by Prime Minister, Narendra Modi from November 8-9 midnight) coming back to the banking system. This was interpreted to mean that the ‘entire’ cash would return by December 30, when the scheme closes.
Extrapolating from here, critics (opposition parties included) argue that demonetisation has been a monumental failure as there was either no black money, or that whatever existed, hoarders managed to get this converted into ‘white’. Some have gone a step further to say that Modi had done a deal (50:50) with them by luring them to pay 50 per cent and have all their past sins extinguished.
The argument is flawed. It is part and parcel of a malicious propaganda unleashed by empathisers of black-money mongers to discredit the Modi Government, which has taken a bold decision in the long-term interests of putting the economy on a high growth trajectory and helping the common man and the majority of the poor.
First, it would be premature to surmise at this stage that all of the cash embodied in Rs1,000/Rs500 would be deposited (Adhia clarified that he never said it). The Rs 12,50,000 crore returned thus far, according to the Reserve Bank of India (RBI), could be on the lower side as the State Bank of India research team has hinted at some ‘duplication’ in counting. So, whatever amount is left out would without doubt be black and turn to ‘zero’ after December 30. There would be a corresponding gain to the RBI and made available to the Government.
Second, even out of the money returned to banking system, there would be a substantial portion that remains ‘unexplained’ [to use income tax jargon) or black in plain words. Merely because it has been deposited in the bank does not ‘automatically’ make it white. Therefore, the Income Tax (IT) department shall deal with it sternly.
Here again, those who charge that the Government had done a deal with depositors of black cash by making them pay just 50 per cent (as against 200 per cent penalty that could be levied), need to note that there was a ‘loophole’ in the IT Act. This would have allowed them to declare this as ‘windfall’ income in the current year (2016-17) and escape by paying normal tax at the rate of 30 per cent. The rush to deposit undisclosed funds was prompted by this loophole.
The Ministry of Finance team took notice of it well in time and got an amendment to the Act passed (Finance Minister Arun Jaitley took the ‘money bill’ route to overcome the hurdle in the Rajya Sabha). Under this, those who admit till December 30, that money was not disclosed in the past, will have to pay 50 per cent; another 25 per cent will be blocked for four years in the Pradhan Mantri Garib Kalyan Yojna (PMGKY) on which no interest would be payable. Those who do not, but declare their returns, will part with 85 per cent. And, those who don’t declare even in their returns and are caught by the IT department, will have to shell out higher, which could even exceed 100 per cent.
Critics may still question as to why should a liberal dispensation be granted? Why should the amended Act not provide for 200 per cent penalty for all of the unexplained/undisclosed income? It would not have been a practical strategy. Given a choice between (i) disclosing an amount say ‘X’ and having to shell out more than ‘X’ (with 200 per cent penalty) and (ii) letting it turn to waste, hoarder will unambiguously opt for the latter. So, by dangling a carrot of 50 per cent tax (plus 25 per cent blocked in the PMGKY), makes sense.
In view of above, the reality is that black money hoarders are going through the most painful period of their life. At the stroke of a pen, all of their ‘wealth’, deposited in banks or elsewhere, has been put on the watch list and is under threat of being dissolved.
As regards the poor/common man, money recovered from the hoarders will be used via the PMGKY and other schemes for the amelioration of their conditions. Besides, the money would be used as investment in building roads, homes, rails, ports, irrigation etc, and to boost GDP growth and in turn, create more jobs.
True, the common person is facing problems due to restrictions on cash withdrawal (unavoidable when currency replacement on such a mammoth scale is done). But things should be on the road to being normal by December 30, as the Prime Minister and his team have promised to the people.
(The writer is a public policy analyst)
http://www.dailypioneer.com/columnists/oped/shedding-tears-for-the-wrong-victims.html