Thirty days of demonetisation: Future reforms must take into account man's nature

The present black money imbroglio reminds me of a meeting I once had with an astute and wise senior citizen in one of the smaller towns of India — someone who was extremely concerned about the deteriorating situation in the country. His view was that it would be very difficult to eradicate corruption, as it is in conformity with basic human instincts of self-preservation and perpetuation. And that any law that penalises basic instinctive nature is bound to fail. On the other hand, he suggested, it might be a better idea to recognise the human right of pardon and reform — prayaschitta. If the wrong-doers could instead, convert their misdeeds into constructive efforts towards the country’s economy and benefit the poor in some way, they would be cleansed and ultimately, be at peace. Thus, he went on to explain, they could be encouraged to use all that money to start new industries, or route it into infrastructure and basic amenities for the poor. Incentives could be three-fold and given as minimal taxes, confidentiality and exoneration for the previously committed misdeeds — on the basis of useful future activities to which they can contribute. For this, of course, we first need to appeal to their conscience and kindle the spirit of patriotism actively in them. [caption id=“attachment_3112702” align=“alignleft” width=“380”] Representational image. PTI[/caption] An example of this was to be found in J Jayalalithaa (her name is sometimes spelled Jayalalitha). Today, when all of Tamil Nadu hugely mourns the loss of its Amma — the mother it worshipped — it is evident that they remember her, not for being among the most corrupt politicians the country ever had, but one who understood their woes. She symbolised to them someone who made their lives easier in so many ways. Her numerous — and effective — schemes, sometimes dismissed as populist measures, addressed the basic needs of people: Food, water, health, education and women’s empowerment through schemes addressing female infanticide, their education, and even gadgets that made their lives easier. There were several innovative measures for the rural poor — access to seeds, ease of marketing produce, service centres catering to all kinds of paperwork, camps addressing grievances, health check-ups, gyms in rural areas and so on. If a ruler or leader is to be judged by her/his subjects’ satisfaction, Jayalalithaa’s scorecard would show a clear 10. Her good karma for the poor benefitted them, and in return she earned their blessings, her misdeeds were forgotten — and hopefully her last few moments were relatively peaceful, with a clearer conscience. Now, cut to the present, in the demonetisation era. Inconvenience and fears of economic slowdown apart, each passing day throws up newer, mind-boggling conundrums: Fake new currency, bribes in the new currency, mysteries of disappearing people, unimaginably large stashes of cash, surges in bank accounts of the poor whatnots! Just what the human mind will conjure next is difficult to predict. Equally, it is difficult to fathom what the Narendra Modi government has up its sleeve as follow-up measures. The government’s indignation is understandable: the size of the black economy in India, with all its associated ills, is estimated to be a staggering 50 percent. The quality of life for the poor is distressing on all parameters, both in rural and urban areas. If the evaded money can be brought back and used properly, much can be done to provide basic amenities and a dignified existence for them. Thus, by all indications, Team Modi, having given enough chances to the evaders and hoarders, is now on an inexorable and relentless hunt. That it is a part of a carefully calibrated strategy is evident: Finance Minister Arun Jaitley had said last year without mincing words, at the time of introducing the Undisclosed Foreign Income and Assets (Imposition of Tax) Bill 2015, that “By 2017, we are going to make it extremely risky for anybody to have unlawful assets or unlawful transactions of money.” The efficacy of this well-meaning exercise, though, is dubitable. Susan Rose-Ackerman, an expert in Corruption and Public Policy, argues that reducing black money and corruption entails an integrated approach encompassing administrative reforms, campaign finance reform, simple tax laws, increased transparency in public sector financial activities, less state intervention in economic activities, etc (1996). Clearly, a long list — and a tall order. Even if there are indications that we’re moving in the right direction, it’s possible only in the very long term. And we have not even begun addressing black money in foreign tax havens. Given this scenario, what the senior citizen in the small town suggested seems like a more feasible solution to the problem of black money: That the government discard its self-righteous stand and approach wrong-doers with equal empathy as it does the needy and downtrodden. The efforts will have to be continuous and two-pronged: first, appealing to the wealth-owners’ sense of patriotism — through a process of trust-building, assurance of respect, and making them partners in the development process; second, having an efficient execution process in place, which, of course, will need to be done in consultation with think-tanks, experts in economy, public finance and private banking sector. A nodal banking institution will need to be in-charge, and act as interface between the wealth owners and nationalised banks; the latter would lend to the proposed industries and infrastructure projects at pre-decided interest rates. The black money-hoarders will need to be convinced about the good uses their money can be put to, while assuring them confidentiality, immunity, low taxes, as well as legitimate returns on the investments they make. This new approach could be a game-changer, with all-round benefits. To the hoarders, it would mean avoidance of high taxes, penalties, raids. Also, in the case of money stashed abroad, there are vulnerabilities associated with complex interactions inherent in functioning of global financial markets that could cause destruction of wealth — from which they would be saved. Last but not least, they’re saved from indirect bad karma on account of their money being used to finance international terror activities. For the economy, the fears of slowed growth, unemployment and deflation are allayed. And there’s an overall increased activity and expectation of buoyancy. For the government, this would bring money back into the banking system as well as yield money for other welfare schemes, create employment and alleviate poverty. This could even reduce reliance on external aid for projects. For the common citizen, this would create employment opportunities as new industries are set up and new infrastructure projects come up, which would include facilities that address their basic needs of water supply, sanitation, hygiene, health and education. This could also help reverse the trend of migration to bigger cities for employment. Greater money with the government would in fact, lead to lowering of income tax for the lower middle-class. Thus, the honest tax payer actually stands to gain. There would be improved infrastructure. All, in all,  acche din, all around. And finally, the outlined approach, based as it is on empathy and appealing to common sense and propriety, urges us further to look beyond the current subject of black money. It makes us reconsider the entire law-making process in India and question if it is in conformity with natural justice and based on a deep understanding of human nature. For citizens to adhere to laws, they need to trust the government, and vice versa — but the government must lead. So the first thing is that the laws need to be viewed by all sections of society as coming from an authority that is benevolent. Two, laws should take into account man’s nature, which includes self-preservation and concern for progeny. And finally, the enforcement and execution part needs to be worked out adequately as a precursor to the actual passing of laws. If not, we will always find ourselves caught in the quagmire of either violations or amendments. It is on this basic premise that the agenda of future reforms must be laid.