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RBI Report & A Reality Check On India’s DeMoetizaton.

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Author : Subir Deb
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Sometime back, one renowned political leader was addressing his election rally in Haryana’s Panchkula District. He aroused the local sentiment with fiery speeches. By referring to several hydroelectric projects on the river Sutlej, he tried to send the message that gross injustice is being meted out to the local farmers even in supply of irrigation water by “skimming” electricity out of the Sutlej water – before it is allowed to flow through the district. It’s akin to feeding the children milk after skimming i.e. after removing cream from whole milk!

Ingenuity of our political leaders in resorting to such bizarre rhetoric is widespread. Recent scathing attacks terming Demonetization (DeMo) as “flop show”, accusing Modi for loss of over 100 lives, blaming him of collusion with corrupts in turning black money into white money (just because RBI on 30th August reported 99% of demonetized currency is back to banks) and calling DeMo a process of MONEY LAUNDERING remind people the story of Haryana’s “skimmed water”.

Congress led the attack demanding apology from Modi for history’s “biggest scam“. TMC Chief Mamata Banerjee, posted in her Facebook “Was the system deliberately set up by Government of India to facilitate dealers of black money to convert black money into white in lakhs of crores? What was the hidden agenda?” Communist Party of India-Marxist leader Sitaram Yechury said “India can never forgive Modi government for this anti-national act”. “Over 100 people died due to demonetization. Jobs lost, lives turned upside down, livelihoods over. Just due to one man’s whim,” Yechury tweeted. The list of criticism is long.

When Prime Minister of India Narendra Modi announced DeMo, opposition political parties, instead of extending support to the Government for taking the bold decision aimed at attacking the menace of black money, tried to put obstacles in the way of smooth change over to new currency notes. Rather than making it easy for the public, these leaders tried to incite people against Modi. Even demand for roll-back of the decision was made in the name of professed harassment of the common men. Earlier, TMC leader Mamata Banerjee predicted “famine” as a result of DeMo. Manmohan Singh who is often ridiculed as a puppet during his decade-long tenure as India’s Prime Minister till 2014 which ironically saw a series of telling scams, such as Coalgate, 2G, and CWG etc., went to the extent of dubbing the exercise as “organized loot and legalized plunder”. Yet, the people of India, in whose interests the politicians pretended to raise their voice, continued to repose faith in Modi. Now, these leaders are back again to mislead the Nation with a story like Haryana’s “skimmed water”!

People are aware that money which is earned through illegal activity is called black money. It is received in cash from unlawful economic activities. It avoids Government’s financial scrutiny and hence cannot be taxed. The process of giving illegally-earned money an appearance that it originated from legitimate source is called money laundering. In order to avoid detection, black money is not kept in banks or invested in formal economy. Tax on this income is not paid as its dubious source cannot be declared. DeMo left the black money holders with only two choices – either to ditch the stock of banned currencies – in which case the notes would not have come back to the banking system or to take the risky option of depositing the cash to banks – which per se does not make the money white. The recent RBI report merely reveals that the black money holders have chosen the second option i.e. DeMo has FORCED them to go to bank and face legal scrutiny. Now that all the big and small fishes are netted, it is a matter of time for the Government to identify, prosecute and punish the corrupts, even with rigorous imprisonment up to 7 years plus to recover arrear tax, interest and penalty, as per legal provisions. If the source of the cash could be traced back to other illegal / criminal activity that is punishable under laws of the land, such punishment would also follow. Moreover, DeMo has forced the black economy to join the formal economy which is a huge economic gain. The notion that black money has been converted into white money merely with its deposit to banks is totally wrong and devoid of any logic. When Modi’s rivals try to convince the nation that THIS is “money laundering”, people recall the story of Harryana’s “skimmed water”!

DeMo, as envisaged by Modi, relied on surprise and shock element to flush out black money and fake currencies. It was bound to be disruptive. Like any major surgery requires convalescence, the disruption due to DeMo caused a temporary slowdown in economy, which is highlighted by the fact that GDP growth in 2017 April-June quarter dipped by over two percentage points compared to the previous year. The immediate benefit has been in terms of signaling – a loud and clear message has been sent across the board that tax compliance is priority. It has also dealt a body blow to circulation of fake currency. Side by side with DeMo, the transition to GST has also contributed to slowing down economy in the 2017 June-quarter end – fact Modi’s rivals conveniently ignore. Nevertheless, with DeMo and GST, India has taken a vital step towards greater formalization of its economy. Also, DeMo has widened the tax base. The Economic Survey estimated that DeMo by itself added 5.4 lakh taxpayers. Nearly 14,000 property transactions of over Rs 1 crore are already under the scanner of Income Tax Department and these include those who haven’t even filed income tax returns. The exercise also unearthed large number of persons and clusters having suspect transactions on which investigations are in progress. The government has taken a string of measures to stamp out black money and has stepped up post-DeMo actions such as Operation Clean Money to smoke out tax evaders. The sharp decline in inflation, fall in reality and housing prices (where black money plays a very important role) and rise of investment in equity markets and mutual funds through domestic players are some of the immediate gains of DeMo. It has curbed conspicuous consumption and blatant consumerism for absence of black money in the pocket of corrupts. Dubious trades and industries that flourished with black cash have also taken a hit. The other benefits of DeMo would show up over a period of time.

When such a bold step to weeding out dishonesty from the corruption ridden economy of India comes under dubious attack, it raises a question mark on the real motive behind the assault – be it from the political leaders, journalists or intellectuals. When hurdles are created against the measures of restoring transparency in the system, the real intention of individual or groups at the back of the stumbling block must be checked thoroughly. Overall, the people smell a rat – is there any unholy nexus of politics, black money, media and some intellectuals? India of 2017 is now a matured democracy of 70 years. Today, its people are not only smart and intelligent but also ask questions because they can see through Haryana’s “skimmed water”.

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