The government’s recent steps to demonetise Indian currency and offer frequent Voluntary Disclosure of Income Schemes show its inability and failure to tackle the basic causes of black money and strictly enforce the rule of law.
With rampant corruption in political and bureaucratic circles, no one believes that some political parties and black money hoarders friendly with the government would not have known about the demonetisation scheme beforehand and taken steps accordingly.
We can gauge this by looking at those who support the scheme and those who do not. No one can even think of a political outfit in India which has basic ethics. Second, India has a vast population with significant number of middle class, lowermiddle and poor families.
It is apparent that black money holders, always smarter than the government would use them to convert their illegal cash into new notes by foregoing a part of it towards commission. Our people have a lot of expertise in creating fake identity cards, so it is not difficult for affected parties to create fake ID cards and exchange old notes for new.
Do we not know how thousands of fake Demat accounts for holding shares in electronic form were opened by interested parties not too long ago to subscribe to public issues or sell shares of dormant investors, even though Know Your Customer norms were in place? The enforcement mechanisms we have in India cannot prevent the generation of black money or cash distribution during elections. So it is highly doubtful that the government or the highly inefficient public sector banking system can prevent or even smell the illegal exchange of old notes for new. Indeed, as some recent arrests have shown, many bank staff have used the loopholes in the system to help black money holders to exchange notes for a commission.
Then, the exceptions given to petrol pumps, milk booths, pharmacies and hospitals allow these outfits to become a conduit for exchanging old notes for new at a price. There is no clarity on old notes in possession of residents abroad. Even though the government claims it is cleaning up the cash system through demonetisation, there is every possibility that it would not be long before new black money comes into play.
Our population of 120 crore (about 24 crore families) need to exchange the old notes and even if we adjust for about onethird of these families who are poor and may not possess the so called high-value notes, we are left with a figure of about 16 crore families who require assistance in exchanging notes, a gigantic task with both economic and time costs to it.
Did anyone think of the productive hours that would be wasted during the whole exercise? If the claim that counterfeit notes are in circulation in large numbers is true, it only indicates the pathetic security features of our existing currency notes, and the failure of the government to arrest the circulation of fake currency.
We should also ask ourselves why such a menace is not faced by Western countries. At least if the power to demonetise is vested with the RBI with the approval and supervision of the president, the scheme could have some credibility, but unfortunately it is not so. In the so-called Digital India, one fails to understand why demonetisation could not have been digitalised by collecting all particulars of old notes, details of holders with identity proof or bank account numbers on or before December 30, with the option given to the holder to exchange old notes at his convenience, say within the next six months or so.
Alternatively, the exchange should have been automated like the ATM machines which dispense cash. Both these systems would have avoided the suffering undergone by the public. What is the guarantee that a new government would not remonetise the old currency under one pretext or other later? Black money holders are usually powerful people who always find a way out to reduce their losses to a minimum.
Indeed they have time till December 30 to complete the exercise. Some black money may be stamped out, but is it worth all this trouble? The timing of the move is also wrong, as the government is in the midst of its budget exercise and planning to implement the GST. The GST might become a casualty of the demonetisation exercise. If lawyers become our finance ministers, our economy would end up with arguments only. Money, money everywhere but no money to spend is the order of the day. Let us take a look at the postdemonetisation scenario.
Unlike the Japanese who spend two-thirds of their time planning and one-third in execution, we spend most of our time firefighting and thus waste precious time and money. The finance ministry and RBI are driving the “demonetisation vehicle” in a jigsaw fashion not knowing what to, when to, how to and where to do things. If we had a responsible government, many top heads would have rolled by now considering the messy situation on the ground.
The government on the one hand says it wants to punish black money holders by demonetisation, but on the other hand comes up with amendments to the Income Tax Act allowing black money holders to get away, by taxing just 50 per cent of the black money disclosed. The other painful thing is, in case of black money unearthed by the government, it taxes only 85 per cent. One wonders why the government should leave the rest in the hands of a culprit! The government can raid black money hoarders and file cases. But where are the judges to deliver the judgments?