Demonetisation impact: Will the crackdown stop once cash flow eases?

Barring the first few days after the 8 November demonetisation announcement, newspapers, television channels and online portals have been carrying headlines on unaccounted cash almost every single day. Those cash seizures, both the invalidated currencies and the new bank notes, tell us something about corrupt India and its mindset.

First look at the headlines, picked at random, and not an exhaustive list:
- Cash crunch? Rs 242 crore in new currency seized after demonetisation
- Post demonetisation, I-T officials seize Rs 250 crore of unaccounted cash in Hyderabad
- Black money crackdown: Rs 60 crore cash, 245 kg gold seized from 10 airports since demonetisation
- Demonetisation: ED seizes Rs 2.19 crore cash in Chandigarh
- Biggest seizure of Rs 142 crore cash, gold post demonetisation
- Here a raid, there a raid, everywhere a raid: Indian taxmen after demonetisation
- Bengaluru: Rs 2.25 crore in new notes seized from flat guarded by two dogs

If the black money can be saved, then it has to be saved, never mind the risk of being found out. And why not if there are people to help with it.

 Demonetisation impact: Will the crackdown stop once cash flow eases?

Representational image. PTI

The question is what bolsters the belief that they may escape notice. Is it because of a system that sustained on grease, would eventually start winking at the stashes of cash converted from old currency that was otherwise trash? Or by the law of averages, finding one amid innumerable culprits, may not be easy?

Before the government came out with its incremental tightening of the noose after demonetisation, recall how even the Zaveri Bazaar jewelers kept their outlets open all night, betting on selling gold at a good premium after substantially discounting the face value of the Rs 500 and Rs 1,000 bank notes. The belief that it can be “managed” in a country known for its jugaad encouraged that modus operandi.

With the seizures made came the arrests.

Here is an interesting point made by Tim Worstall in Forbes: “Think a little bit about the point made by that great, and late, economist, Frederic Bastiat, about the unseen. It's easy enough for us to see people being arrested, money being confiscated, and then say that demonetisation is a disaster, isn't worth it, should be undone, whatever. But that's not what economics is about, nor is it the job of the economist. Instead, we must be looking for the unseen, the non-obvious. Which is here, well, how much black money was being confiscated two months ago? How many arrests were there?”

How many arrests were made prior to demonetisation? Has enough been detected?

There weren’t enough arrests in the past because a well-oiled system was in place, which included politicians like Janardhan Reddy, who can celebrate a big fat wedding with its costs running into crores.

Money brings swagger, political connections, and help from the machinery to bend the rules. Legitimate or illegitimate cash, these people continue to retain respect as they hobnob with the movers and shakers. They remain untouched.

The kind of cash being found and confiscated by the various agencies is because the system was operating at full-throttle all along and demonetisation meant little to some. They found willing bank officials, including one from the central bank in one isolated case, to assist. There was a belief that a crime here and a crime there wouldn’t be detected amid the concerted crackdown.

We have had politicians in their offices caught agreeing to swap not one but up to Rs 10 crore of black money with new ones, ‘hand to hand’ for hefty commissions of up to 40 percent. No one batted an eyelid when a stranger walked in claiming to be a businessman wanting to convert black to white. The strangers were TV journalists conducting a sting operation.

On 2 December, the Finance Ministry stated that “Action has been taken in such cases (non-kosher transactions) and 27 officials of various public sector banks have been placed under suspension and six officials have been transferred to non-sensitive posts.”

At least, one major private sector bank's statement, a branch in Delhi, is revealing how anyone could get into the act.

Obviously, not all in mischief have been netted, at least not yet.

How else does one explain the Rs 60 lakh found in a bank account, the Jan Dhan account of a Kolkata slum dweller, who according to reports, did not even know she had a bank account? Many can vouch how despite the government push, it wasn’t easy to open such account because of the documentation, address proofs et al. And yet, without a proper KYC, an account in her name? And a windfall? Once it is known whose cash it was, the entire sordid story of India’s black economy would unravel.

But for the involvement of bank personnel, finding new notes of Rs 2,000, cannot be part of the hauls across the country. While the common man grumbles, yet subdued, waits in queues to withdraw cash, even if it were for a mere Rs 2,500 just to get by till the cash flow eases in the economy, it is significant that the confiscations should include the much sought-after crisp notes. Not just a few of them, but in quantities that could choke the generally empty ATMs.

We need to realise that despite demonetisation of 86 percent of the cash in the country, and perhaps because of that, this flurry of illegal conversions is coming to light because few stashed it in Rs 100 currency notes. Most of the illegitimate wealth is in properties, benami such as it is, and is yet to be scoured for. Its size can be guessed, rather approximately.

The belief is that the old concealed, tax-evaded cash can be retained rests on the premise that once the stress of cashlessness of the common man eases, the authorities would go back to their old ways and again start winking. After all, they have their routine to do, which is to collect taxes as they did in the past, a little indifferently to everyone’s advantage, except the government coffers.

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Updated Date: Dec 15, 2016 16:11:52 IST