Note ban not an answer
By Dhurjati Mukherjee
A section of experts believe that like energy, black money cannot be destroyed, it can change form and that has actually happened. Thus, Prime Minister Modi’s crusade against black money has a long way to go. The demonetisation scheme had this as its major goal and may be laudable. But it instead resulted in hardship to the common man across the nation, with the big fish still out of the net.
It is a well-known that all major political parties collect funds from business houses, most of which they don’t want to reveal. The huge expenses incurred during elections are a testimony to this. Moreover, the buying of legislators, councillors, panchayat members is infamous in Indian politics and the BJP, Congress, Trinamool Congress and other parties are quite efficient in this work.
The BJP and the Congress are no sacred cows in this matter. The recent allegations of Rahul Gandhi against Modi of taking money from the Aditya Birla group are a case in point while the former is silent about the scams during the UPA regime. These once again demonstrate about the character of politicians who are fabulously wealthy.
Recent reports have also indicated that the BSP deposited around Rs 104 crores of Rs 1000 and Rs 500-old notes in a bank in New Delhi after demonetisation. Earlier, the party had submitted to the Election Commission that all its donations were below Rs 20,000 and, as such, it did not have to reveal the donors names. All this clearly reveals that the party was hoodwinking the masses but the EC couldn’t do much as it was within rules. Though Mayawati has accused the BJP of harassing a dalit party, she expressed confidence of forming the next government in UP.
There are also other political leaders who are deeply entrenched in black money. But demonetisation and its after effects may not have impacted them and, even if there has been any affect, this may not have been to a great extent except possibly to the BSP.
Whether the raids are being conducted against the opponents of the BJP is not known which only time will tell. Questions have been raised about a few leaders of the BJP, specially Union Transport Minister Nitin Gadkari, who it is understood to have spent a few crores during his daughter’s marriage. Can there be no inquiry about his income and lavish lifestyle and similar other leaders? Experts argue that even without demonetisation, raids could have been conducted and those having huge cash or gold could have been brought to book.
Preliminary information suggests that raids helped in detecting over Rs 3185 crores of undisclosed income, seizing Rs 100 crores of new notes and issuance of 3100 notices to various entities on charges of tax evasion and hawala like dealings. Economists believe that the gains were rather insignificant as it has been established that only a small portion of unaccounted wealth is kept in cash.
Meanwhile, some recent observations by Modi affected the general sentiment – also of the stock market — as he has possibly been speaking somewhat irrationally. Some of his antics emphasising demonetisation and/or digitisation lack logic and may befool only the illiterate and his party members and not the educated class. Though the Government claimed that anything between Rs 3 to 5 lakh crores in old notes would not return to the system, it has been found that around Rs 14 lakh crores has come back. Add to this is the fact that if the one and a half crore Indians living abroad hold Rs 20,000 on average, the total sum could be close to the amount of demonetised.
In the current situation, Finance Minister Jaitley has raised hopes with the assurance that taxation levels would be reviewed as collections have been higher, hinting at a possible reduction in various taxes. He even stated recently that a lower level of taxation is the key to building a global competitive economy in the past two-and-a-half years since liberalisation.
In the New Year, the challenges for the economy need to be met in a professional manner. According to a report of the Centrum Wealth Research, the unorganised sector is expected to bear the brunt of demonetisation while within the organised space, “a lot of industries would get impacted owing to the sucking out of daily liquidity needed to run the business”. Sectors like “non-banking finance companies, consumer, building materials among others would get most affected owing to high component of cash either in the sales mix of products or high cash usage in the distributor supply chain”, it rightly stated.
Thus, the projection by the RBI that the growth rate would decelerate to 7.1 per cent for the current fiscal from the earlier forecast of 7.6 per cent cannot be doubted. There are suggestions that corporate tax may be reduced but it is difficult to presume whether this would increase investments and boost growth.
The need of the hour is to ensure that along with higher growth, there is development both of physical and social infrastructure in the country. The current initiatives have not given any indication of this as yet though it is expected that some of the programmes may yield positive results in the coming years.
Modi’s speeches if analysed about the basic objective of the initiative were no doubt, appreciable but he refused to understand the problems being faced by the common man and that there was no preparation before demonetisation was announced. Many are of the opinion that it was a political gimmick. Those who initially supported the measure were later disgusted with the problems they faced.
A major problem was in the fact that in a country with over 6.30 lakh villages, there are only around 1.60 to 1.70 lakh bank branches, out of which around 60,000-80,000 are in rural areas. As such, most of the population has very little or no transaction with the banks. According to the World Bank’s 2014 Financial Inclusion Database, the percentage of Indians above the age of 15 who had a bank account was 53. The estimate for the same indicator for rural India was 50 per cent.
If the estimates are correct, India was home to 21 per cent of the world’s unbanked population. Even after Jan Dhaan yojana, the situation may have improved a little but the situation still will take much time to bring at least 80 per cent of the rural population within the ambit of banking.
Also the percentage of debit card holders, as per the above report, is just 8 per cent which presently may be around 9 per cent. To put in simple terms, India’s cash to GDP ratio stands at 12 per cent, i.e. less than 10 per cent of Indians ever used any kind of non-cash payment instrument. Thus, going digital may be the future strategy, but experience in past five decades suggest that it would take much time as resources and aptitudes of people to steadily change.
In such a scenario, the demonetisation of notes had put the rural population in great difficulty. Even farmers, small traders and manufacturers have been facing problems in carrying on with their business as they had no money to pay wages. Some were forced to stop their business for lack of sufficient money from banks. The cashless economy, being talked by Modi and his team, will take a long time to become a reality. —INFA