A Pune-based think-tank named ArthaKranti claims that it had made the proposal of abolishing the currency notes of larger denomination to Prime Minister Narendra Modi before he assumed office. And there were four other proposals along with those. But before getting into the nitty-gritty of one of those, you might wish to revisit ArthaKranti's high-denomination note ban idea.
The think-tank's proposals, defined as “well-researched scientific approaches designed to completely transform the current Indian socio-economic scenario" also include ideas like scrapping all 56 taxes including income tax and putting in a new tax system — bank transaction tax or BTT — in place that will ensure every transaction routed through banks which will attract certain deduction in appropriate percentage transaction.
ArthaKranti defines its proposals as “effective and guaranteed solutions to black money generation, price rise and inflation, corruption, fiscal deficit, unemployment, ransom” and other such issues. These proposals include:
1) Scrapping all 56 taxes including income tax excluding import duty.
2) Recalling and scrapping high-denomination currencies of Rs 1,000, 500 and 100.
3) Ensuring that all high-value transactions are made only through banking systems like cheque, DD, online and electronic.
4) Fixing the limit of cash transaction and stopping taxing on cash transactions.
5) For government revenue collection, introducing a single-point tax system through the banking system – banking transaction tax (two percent to 0.7 percent) only on the credit amount.
When asked about the basic idea behind their five proposals Amod Phalke, a mechanical engineer put forward elaborate arguments. He stated, “In the Indian economy, cash transactions far outweigh transactions through the banking system — as much of 80 percent of the economy is cash-based, leading to an unhealthy development of the banking system — the backbone of any modern day economy. Alarmingly enough, with every passing year, this percentage of cash transactions is growing, rather than shrinking! The natural effect is a scarcity of credit supply for one and all”.
He added, “The 'have-nots' remain outside the banking system and never get a chance to establish their credibility. This keeps them at the mercy of the 'cash economy/parallel economy'. The political system — due to the lack of government funding (white money funding) — is at the mercy of the parallel economy and black money. This inevitably leads to increased criminalisation and corruption in politics.”
Phalke highlighted the disparity between India and some other world economies as regards to ratio of “per capita income to highest denomination” and “irrational distribution of irrationally high denomination” and stressed that "proportion of highest denominations in total currency money and their cost of printing explain common occurrence of fake currency in abundance". He added that the abolition of higher denomination notes was need of the hour.
The table below highlights the disparity between India and some other world economies as regards ratio of Per Capita Income to Highest Denomination (source: ArthaKranti)
|Country||Per Capita Income [A]||Highest Denomination [B]||A÷B|
|USA||$ 53,000||$ 100||530|
|UK||£ 25,000||£ 50||500|
|Japan||¥ 50,00,000||¥ 10,000||500|
|India||Rs 90,000||Rs 1,000||90|
Explaining ArthaKranti's next big proposal of abolishing all existing taxes and introducing banking transaction tax, Phalke added, “Every transaction routed through a bank will attract a certain deduction in appropriate percentage (say two percent) as a Bank Transaction Tax [BTT].” According to ArthaKranti, BTT should work this way:
- A single-point tax deducted at source
- A deduction to be effected on receiving/credit account only
- A deducted amount to be credited to different government levels like Central, state and local (for example, 0.7 percent, 0.6 percent and 0.35 percent respectively)
- The transacting bank to also get a share (say 0.35 percent) as the banks performs a key role
Arguing for other proposals of their organisation Phalke said, “As per the 2015-16 Budgetary Estimates, the combined total tax revenue of the Central and all state governments was Rs 20,00,000 crore." Considering the total tax revenue of all local governments (like municipal corporations) to be Rs 90,000 crore, the combined total tax revenue of the Central, state and local governments is as follows:
Rs 20,00,000 crore + Rs 90,000 crore = ~Rs. 21,00,000 crore
According to ‘Payment System Indicators’ available on the RBI website, average monthly bank transaction volume is Rs 1,20,00,000 crore taking into account currency denomination compression and a limit set for cash transactions to enjoy legal protection, a BTT Rate is required to generate the same tax, he said.
Will this happen? Only time — and Narendra Modi — can tell.