Black money & Prez Patil: Is it time to scrap Rs 500-1,000 notes?

By Abhay Vaidya

Such is the ubiquitous presence of black money in India that now even India’s first woman president, Pratibha Devisingh Patil, finds herself enveloped in a controversy involving her son and Congress MLA Raosaheb Shekhawat.

On Tuesday, Shekhawat was interrogated by the Amravati police in connection with the seizure of Rs 1 crore in hard currency from a car coming from Nagpur on 12 February. The unaccounted money was hidden in the luggage compartment of the car and the Maharashtra Congress and Shekhawat explained it as “party funds” meant for distribution to poor Congress candidates ahead of the civic polls on 16 February. Many found this explanation facetious and asked whether this was how the Congress party transported its party funds or whether, in reality, the cash was meant to buy votes.

While the Rs 1 crore cache of unaccounted cash was the biggest single-point seizure related to the recent Maharashtra civic elections, in poll bound Uttar Pradesh, the seizure of unaccounted cash has already crossed Rs 50 crore. In just one instance, Rs 13 crore in cash was seized from a van in Ghaziabad near Delhi last month. According to a CNN-IBN report, the Election Commission and intelligence agencies have estimated that more than Rs 10,000 crore in black money was expected to be pumped into the UP elections alone.

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Even if one accepts that this is the estimate for one state and this form of black money surfaces primarily during elections every five years, the fact is that it amounts to less than a drop in the ocean of unaccounted wealth in the country.

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Early this month, while speaking at Interpol’s first global programme on anti-corruption and asset recovery, CBI director AP Singh said that Indians were the largest depositors of illegal money in tax havens such as Mauritius, Switzerland, Liechtenstein and British Virgin Islands. Singh estimated the amount deposited at $500 billion (Rs 24.5 lakh crore). Incidentally, this figure is not far from the Rs 25 lakh crore estimate that was tabled in Parliament by senior BJP leader LK Advani while initiating a debate on black money in December 2011.

How much longer will India allow its politicians to waffle before decisive steps are taken to arrest the galloping parallel economy?

One such decisive step was taken in January 1946 when currency notes of Rs 1,000 and Rs 10,000, which were then in circulation, were demonetised primarily to curb unaccounted money. The higher denomination bank notes of Rs 1,000, Rs 5,000 and Rs 10,000 were reintroduced in 1954, and were again demonetised in January 1978. This action was taken through the with the passage of the High Denomination Bank Notes (Demonetisation) Act, 1978.

This action was preceded almost by a decade in the US by President Richard Nixon when, in 1969, he withdrew high-denomination notes of $500 and above (at one time the US had bills of $100,000). This was done essentially to fight the mafia and organised crime. Since then, the highest denomination in the US was of $100 notes and electronic funds transfers are encouraged for transparency in financial transactions.

Is India ready for yet another round of currency compression? A group of crusaders who subscribe to the theory of “ArthaKranti” ( www.arthakranti.org) propounded by its Aurangabad-based architect and chartered accountant Anil Bokil, feel that such a step is long overdue.

Besides the currency compression proposal which has a clear precedent, ArthaKranti makes radical proposals which include the withdrawal of the existing taxation system (barring import duties) and replacing it with a single-point transaction tax to be deducted at source and restricting cash transactions to Rs 2,000 which would not attract any tax.

In fact, in March 2007, President Patil who was then Rajasthan Governor, wrote to the then Lok Sabha Speaker Somnath Chatterjee urging him to give the ArthaKranti team an opportunity to present their model before members of parliament. Since then, this team of crusaders has discussed its proposal with most of the top politicians from the ruling alliance and the opposition and a large number of economists.

What is tragic is that while numerous positives and negatives have been discussed by the politicians and top economists of the nation - including those from the RBI - none have been willing to stick their neck out in public to either support, reject or suggest modifications to the ArthaKranti model.

Perhaps, the Indian establishment will wake up only when some renowned economist from the West comes up with a strategy plan - or even elements of it - to take the bull of the black economy by the horns.