Prof. M. K. Bhat
The bold decision announced by Prime Minister Narender Modi on Nov 8, 2016 to demonitise nearly 86% of the total currency, left people shocked and awesome. In his televised address, he announced that notes of 500 and 1000 will cease to be legal tenders. This assured people that Modi means business on containing corruption and at the same time tremors went down the spine of corrupt politicians, bureaucrats and business men. Those with legal money had nothing to hide and others thought of ways to hide the unaccounted money. The demand for Jan -dhan cardholders increased, people were paid to be in line, past debts got cleared and even salaries were given in advance, rivers and temples flourished with 500 and 1000 rupee notes. The long queues outside banks came in to existence with complete restraint of those standing for hours, conveyed the acceptance of Modi’s demonetization to control black money, by people.
People, no doubt face inconveniences for cashing their own money but there was no hooliganism as propagated by certain quarters. The problems in the initial stage especially in the rural areas was due to lack of banking infrastructure while as no big issue was visible in urban areas after a day or two. The urban India is full of banks and plastic money is quite in vogue, only 27 % of the villages have banks within an area of 5 kms. The mature attitude of masses despite undue provocation from certain quarters has hinted opponents about the changing times and their shrinking political space.
It is for the first time in the history of free India that opposition has come openly in favor of corruption in the parliament, despite the sentiments of people being on the other side. Delhi Chief Minister was not allowed to deliver his sermons by people at various places. It is difficult to judge whether opposition fell in love for the people in line suddenly or they are searching for some chance in the guise of poor man’s ill conditions. How their demand to take back the decision will help the poor people is beyond the imagination of any economist or common man. It needs to be ascertained whether opposition to the attack on black money, is a degradation of values of our political class or a matter of survival or opposition because it was started by Modi. The biggest irony is that those who attained political power on the plank of corruption are against this move and nothing else can be expected from those who are notorious for scandals, chit fund and fodder scams. In a democracy, one can easily judge the worth of those politicians who are not on the same page with their people. Political leaders have made it a big issue in the parliament, whatever is the case, and they are simply exposing themselves in the eyes of people and add to the stature of Modi by being all against one. A survey conducted by C Voter in nearly half of the total parliamentary constituencies has found that demonitisation of 500 and 1000 note was held as a worthwhile attempt to combat black money by people .
The flimsy arguments put forward against demonetisation convey the nefarious intensions of the opponents. Certain people hold that it should have been discussed in the parliament; this is absurd statement and goes against the very spirit of demonetisation. Others have started to target the process of demonetization; the fact is that demonetising huge currency in such a big country could not have been possible in any better way than this. According to RBI as on March 2016 currency in circulation was Rs 16415 bn; 500 rupee notes accounted for 47.8% in value and Rs 1000 notes another 38.6% together they were 86% of the value of notes in circulation. The continuous monitoring by government is worth appreciation and has helped to stop channeling of the black money in new areas.
The Prime Minister in his lecture had held demonetization as an attack on; terrorist funding, counterfeit currency and black money. All three objectives are sensible and demonetisation was quite necessary to tackle them. There were 400 crore worth counterfeit currency in circulation. It is used for terror funding, stone pelting and drug smuggling in the country.The devastation propagated through this money could be in billions. The anti social elements and their supporters from across the border used it as a big weapon of destabilisation. Black money leads to poverty and taxes the honest tax payer.
Demonitisation will remove conspicuous consumption, thereby the artificial demand will come to a lower level, and prices will decrease. The decrease in prices will boost demand in the market. The rate of interest will decrease which may lead to an escalation in investment and jobs. Banking sector being the life of an economy will get new lease of life by an improvement in its nonperforming assets which at present are at horrific levels. It will help to reduce the social inequality by bringing tax evaders under tax net, the honest tax payers will get a bit relief and the gap between the law abider who pays tax and law avoider who enjoys for being dishonest will come to a lower level. India’s tax revenue as a percentage of its GDP is 16.7 % in 2016 compared with 25.4% in USA and 30.3% in Japan. The increasing aspirations of people demand social and infrastructural development which will have a direct impact on the poor and can be fulfilled upto a great extent by getting the unused money in the main stream of the economy.
It is no doubt that demonetisation will influence only the stock of money. There is a need to control the flow of money too. We need to control the root cause of corruption otherwise the sources of black money may once again accumulate huge amounts over the period of time. Generally high tax rate leads to tax evasion and ends in black economy. Taxes will have to be curtailed to make people responsive to the tax system.
In order to control the flow of money the Government rightly propagates for cashless economy. According to certain estimates transactions that take place outside formal channels amount to around 20% of India’s annual $2trillion GDP. The use of plastic money will lead to more accountability in the system. In order to control black money, tax raids are being conducted and the government is going to chase Benami property in the country. GST will be another right step in this direction, it will reduce the tax rate, may increase tax revenue.
The opposition by stalling parliament is simply delaying action on these important issues and is preparing soup for the corrupt people in the country.
(The author is Director (MAIMS) Guru Gobind Singh Indraprastha University, Delhi)
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