Political parties hit hard, but
People suffer in cash chase
The Modi government's demonetisation strategy is praiseworthy. But the cash
management on the ground has failed miserably, resulting in prolonged inconvenience
and hardship to the common people. This has cost Prime Minister Narendra Modi the
ordinary citizens' goodwill in his fight against black money. Of course, black money
generation and illegal wealth holding would get a big blow, but the worst hit would be
political parties, both at the national and regional levels. They depend on black money for their
electoral power games, writes our senior financial journalist Jaya Raj .
The government's abrupt
decision to demonetize
the ₹500 and ₹1000
notes just few hours
before the midnight of
November 8-9 sent shock waves and dismay throughout the
country. Prime Minister Narendra
Modi himself came on the air to
announce it, reflecting the gravity of
tax compliance and the black money
issue.
The majority of citizens
welcomed it as a necessary step and
were ready to put up the
inconveniences and hardships that
the government assured would be
over in 2-3 days. But the official
machinery at the lower levels badly failed to ensure availability of
liquidity necessary for people's day
to day lives. (Box 1) The public
sector banks were the worst defaulters in executing the
government's post-announcement
cash handling.
Reserve Bank Governor
Urjit Patel said the
authorities were
concerned that currency
notes of high
denomination were being
misused and fake currency
notes used for terror
financing. He explained
that though the security
features of the notes had
not been breached, it was
difficult for the general
public to differentiate
between real and fake
currency.
Over the years, India has become
a currency-intensive country.
Average Indians are increasingly
dependent on high-value currency
for the past few years because
higher value notes are needed for
their daily transactions after the
phenomenal rise in inflation and
hike in commodity prices.
Almost 90 per cent of money
transactions in India are done with paper currency while
₹500 and ₹1,000
notes currently
account for more
than 85 per cent of
the value of cash in
circulation. Money in
such denominations
is increasingly
dispensed by the
bank ATMs into the
market. In addition,
the growth of black
economy has pushed
up the demand for Rs 500 and
Rs 1,000 notes.
Urjit Patel
Morgan Stanley hailed the
demonetization as a "bold move to
curb black money" and bring
millions more Indians into the tax
regime. As of now, only about 1.6
percent of India's 1.25 billion people
are paying income tax. Other policy
initiatives such as GST should also
bring more producers into the
indirect tax net.
Non-compliance of tax and
creation of black money has crept
into all walks of socio-economic life
in the country. Most enterprises legal radar. They don't have to
depend on bank accounts; cash
payments are the norm.
A significantly large proportion of
Indian national income is thus
unaccounted for. The governments
in the past were not serious about
tackling it as black money had got entrenched in the political and
electoral system.
Arun Jaitley
Closer analysis indicates that this
demonetization or withdrawal of old
notes is part of a range of steps the
government has to resort to
browbeat tax evaders and black
money holders. (Box 2 ). The move
follows the culmination of the
government's black money
disclosure scheme where over Rs
65,000 crore of black money and
undisclosed assets were disclosed.
Reserve Bank Governor Urjit Patel high denomination were being
misused and fake currency notes
used for terror financing. He
explained that though the security
features of the notes have not been
breached, it is difficult for the general public to differentiate
between real and fake currency.
Finance Minister Arun Jaitley has
said the government's focus is on
moving India towards a cashless
economy to combat moneylaundering,
corruption and black or untaxed money. The centre wants
"our economy to be cashless",
he said.
Shaktikanta Das
Economic Affairs secretary
Shaktikanta Das said while the
economy expanded just 30%, the
increase in the circulation of notes
of all denominations had grown by
40% between 2011-16. The increase
in ₹500 notes was 76% and those of
₹1,000 rupees 109% during the
time.
It may be recalled that the BJP
under Modi's leadership was given a
massive mandate by the people in
the 2014 Parliamentary elections on
the promise of change and decisive
action against black money. This
was a reaction to crony capitalism
that thrived under the Sonia Gandhi-
Manmohan Singh administration.
Many of the ruling Congress party
combine's top leaders were directly
involved in massive corruption,
scandals and huge tax evasions,
building public anger in favour of
change.
M B Shah
Prime Minister Modi in the first meeting of his cabinet itself set up a
Special Investigation Team (SIT)
headed by retired Justice M B Shah
to go into the black money issue. In
its fifth report submitted in July to
the Supreme Court, the panel
pointed out that large amount of
unaccounted wealth is stored and
used in form of cash. It suggested a
ban on cash transactions of above
Rs 3 lakh and restricting cash
holding with individuals to Rs 15
lakh to curb illegal wealth in the economy.
Raghuram Rajan
Former RBI governor Raghuram
Rajan had alerted the government
of a disproportionately high usage
of such notes ahead of crucial state elections, hinting at the use of black
money to swing poll fortunes.
Elections so far are fought almost
entirely with undeclared funds.
Understandably, many political
parties, especially those
contending for power in the
forthcoming UP Assembly
elections, are the most
outraged by the
demonetisation decision.
Mayawati
Political parties enjoy a
special immunity under
which they do not have to
account for small donations
up to ₹20,000. Still, they may not be
able to
c o n v e r t
their entire
party chest
into the
n e w
currency
notes and
they may
not be able
to account
for all the
unaccounted money they collected
for the forthcoming state elections.
Temples and religious trusts are
still exempt from these regulations
and continue to be haven for tax
dodgers.
All of sudden, the opposition
parties have become conscious of
the sufferings of the people,
hardpressed for currency notes. Mayawati described demonetisation
as an "undeclared financial
emergency" to divert people's
attention from the BJP government's
failures.
Mulayam Singh
Yadav
Samajwai
Party boss
M u l a y a m
Singh Yadav
who is already
fighting his
own family
m e m b e r s
over the
w e a l t h
generated over the years in power
demanded an immediate rollback of
demonetisation at least for a few
days "to allow common people to
make adjustments".
Some political leaders who
amassed a lifetime fortune from certain well-known financial scams
suddenly realize that they are sitting
on trunkloads of worthless papers.
Other politicos visibly agitated
and angry over the demonetisation
are Mamata Banerjee of West
Bengal, Arvind Kejriwal of Delhi and
K.M. Mani of Kerala Congress party.
Demonetisation would be a big blow
to the terror outfits as well as the
separatists in Kashmir.
Finance Minister Jaitley said on
November 13 that demonetisation
would end the dominance of black
money in the electoral process. He
said political funding, including that
of the BJP, would become
transparent from now on.
It is true that Narendra Modi has
struck a bloody blow to all high level
black money generators like the real
estate, bullion, hawala transactions
and political class. Almost every citizen is now aware of the issue of
black money and its enormity in
public life.
But, the ruling party and the
government also needs to come clean from the allegations like the
BJP's Bengal unit deposited crores in
its bank accounts hours before the
Prime Minister's announcement on
demonetisation. The leadership should also be alert and sensitive to
the sufferings of ordinary citizens.
Otherwise, it would lose the
goodwill of the people in its fight
against black money
