Undoubtedly, demonetisation of currencies of certain denomination would not eradicate black economy in the country. The latter does not exist separately and distinctly from the white economy. You buy a house from me for two crore, if you register for one crore, you save on stamp duty and other taxes. I also pay less on various accounts and get one crore as black money in cash. It is difficult for a government agency to catch us when we are transacting. In a few months, I dispose the money off through activities that take cash. I contribute to the black economy but these are indistinguishable from any activity undertaken through white money.
Given the civil rights that we enjoy, it is difficult for the public agencies to catch the guilty during their transaction. Dealing with them when the cash is with the persons, is easier by setting a limit to cash that can be possessed, seeking details of the sources of the cash or simply through declaring the currency in possession as unusable. Demonetisation of currencies is, thus, a one shot measure and does not attack the process through which the black money is generated. Nevertheless, it is a significant measure by all counts.
The volume of these high denomination currencies in circulation and the proportion that will not return back to the government, which is also an indicator of the success, besides the penalties and taxes received through declarations – is by no estimation small.
But, more importantly, this gives a message that the government is capable of and, more importantly, willing to do the unexpected. The government has tried to give this message amidst considerable skepticism and speculations in recent months but now it has done that without any reasonable doubt. If this is due to the coming state elections or the general elections in 2019, hats off to Indian democracy.
The government has made it no secret that it is just the beginning. Other measures that would hit out at the process of generation of back money or one that facilitates storage are on the anvil. Indeed, the targeted groups are anticipating these with seriousness. Hence, full marks for the score in the first innings. And, there are more than four innings in the game.
The opposition parties have been unanimous and vociferous in launching a full-blooded attack on this measure. This is not because, as suggested by a few, that they receive a larger share of the black money for election or other purposes. The fact of the matter is that they have been stumped, particularly those that have had an opportunity of being in the central government. “How could a party which represents the interests of petty business community and big industrialists, where back money is the norm rather than exception, operationalise the initiative?”
And, more importantly “Why did we not do it ourselves”. This frustration is manifest is conjuring criticisms of the most absurd kind. “The government should have prepared the country for this transition. The machinery for implementing this has not been properly orchestrated so as not to inconvenience the common person.” Anyone with the least of intelligence would know that any preparedness in this huge country would have defeated the very objective: to catch the defaulters, when the money is still in their possession.
The degree of unpreparedness in a way is a reflection of success. Intelligent parties can clearly see the advantage the ruling party would get due to this initiative and therefore are desperately seeking alliance with other parties, keeping aside their personal and ideological differences.
Most people seriously inconvenienced to withdraw cash are still not complaining, as they know there are others who are losing much more. It is just not the sense of being better off in relative sense but they can clearly see they are contributing to attack the cancer of corruption that is destroying our economy. They feel that this is a cost worth paying. It is the inability of the opposition to find any valid ground to defend the interest of the people who are the targets, is resulting in passionate plea for the poor and the common person.
With the stacks of potentially worthless currency notes, many understandably are attempting to convert these into other assets such as gold and foreign currency at a considerable loss to their money value, which is an option better than dumping into a river, paying heavy penalty or facing legal consequences. The government must monitor this and bring those, escaping through these channels, within the legal system.
Happily, there is news of Jan Dhan accounts receiving some deposits, which was a long standing demand of the progressive parties. This, too, provides a less expensive but more risky escape route to the offenders, which the government machinery must try to plug. It is a challenge but not impossible to make the small business people and the common households a part of cashless economy for eradicating corruption. It is ridiculous to suggest that property prices will shoot up. These will be in downhill after a few weeks during which transactions will be frozen.
How would the measure curb the financing of terrorism, taking place through genuine and fake notes. All that the Finance Minister mentioned is that weapons, explosives and the operations of the terrorists require hefty finances. The volume of such financing would be a matter of speculation. The real success in this will depend on how the government tackles the sources through which the activities are financed.
The only valid criticism is that certain politically connected sections had prior information and had taken care of their illegitimate cash well ahead of the time. This is a serious allegation, which should not be difficult to check by examining the recent bank and asset transactions of people who are ‘suspects’. Indian democratic institutions are still capable of bringing this information into public domain, examine the veracity of the charges and take appropriate action.
The problem with the NDA government now is that it has raised the expectations of the common people. They expect the government to take similar measures to attack the roots of the black economy. More importantly, they expect it to make surgical strikes on communal and divisive forces in the country and within the government and convince the people that it means business when it talks of ‘Togetherness of all, Development for All’. All includes Dalits, Muslims and Women in any order.