Demonetisation: Is meta-corruption and 'jugaad' getting the better of good intent?

Since 8 November almost 12 lakh crore in demonetised notes have been deposited into banks, the RBI recently said at a news conference. On Friday, while facing some tough questions on shoddy implementation, the Centre admitted before the Supreme Court that it did not expect 80 per cent of the scrapped currency to return.

We must be cautious here. Return of the money into the banking system does not mean that demonetisation has failed. Indeed, economists such as Surjit Bhalla of The Observatory Group, a New York-based macro policy advisory caucus, has stressed that even if all of the devalued currency were to return, tax revenues will jump and therefore the move would have achieved its objective.

Be that as it may, if we narrow down on the gap between the government's hope and reality, it reflects a mismatch that should be scrutinised. It ought to tell us two things. One, the government perhaps underestimated the innate Indian talent for jugaad. Two, meta-corruption seems to be at work. When the tools of cleaning a system are also corrupted, any effort at cleansing the system is likely to face resistance.

 Demonetisation: Is meta-corruption and jugaad getting the better of good intent?

A file image of people queuing in the line outside ATM. Reuters

Black wealth isn't just top-down corruption, it permeates nearly every strata of the society to create a parallel, rent-based system. Everything moves subject to greasing of the palm. It divides the nation into bribe givers and takers. While the economic repercussions serve to keep a major part of the population poor and out of the development loop, black money is also a moral hazard. While fighting this systemic problem, regulation can only serve a limited role. Unless the risk of generating black money exceeds its accruable benefits, hoarders may find ways to beat the system.

Critics and experts have hence warned the government that demonetisation must be seen as the means to an end, not an end in itself. It must be followed by structural reforms such as simplification of income tax, revoking of stamp duty, etc, to trigger a behavioural change. Since demonetisation's success is also dependent on whether or not people see this as a personal battle against graft, Prime Minister Narendra Modi has repeatedly tried to vest the ownership to individuals, urging, almost imploring them to take up the cudgels on his behalf. Simply put, Modi has invested huge trust on the collective will for this radical policy to succeed.

Was he wise in doing so? Let us consider some pointers.

According to latest government data for fiscal ended 31 March 2012-13, only one percent of all Indians pay income tax. This was revealed when the Centre this year disclosed as part of a transparency exercise direct tax data for the last 15 years. According to a PTI report, a total of 2.87 crore individuals filed income tax returns for that year, but 1.62 crore of them did not pay any tax — leaving the number of taxpayers at just about 1.25 crore which was close to one percent of the country's total population of about 123 crore at that time.

While this doesn't necessarily indicate that a majority of Indians are dishonest, it certainly points to the fact that Indians have a complex relationship with notions of corruption and taxation.

R Jagannathan, in his Swarajyamag column succinctly explains the Indian mindset. "In the Abrahamic system, it is criminal to evade tax. Thus you are a good guy if you pay tax, and a bad guy if you don’t. The outcome is binary. In the Dharmic mindset that most Indians operate in, we both pay taxes and attempt to evade them, depending on what we think is just and acceptable. Tax is a matter of individual judgment and negotiation. Punishment for not paying tax is karmic – outside the ambit of the state."

From temple donations, paying advance salaries, using Jan Dhan accounts of the poor, pressing the unemployed youth into service as money mules, using bank accounts of relatives to park unaccounted cash to buying and cancelling high-value train tickets, demonetisation has sprung some really innovative ideas.

While this is one part of the problem, the other part is plain dishonesty. Ever since the high-value notes were decommissioned, some duplicitous bank officials have conspired with the rich and corrupt to launder their existing black money and almost simultaneously create a pool of fresh black wealth even as the honest majority stood for hours on end in fruitless queues to get access to their daily quota of own legitimate cash.

In report after report, we find unscrupulous individuals subverting the system in collusion with some bankers to turn their black money into white. Livemint gives details about the biggest seizure of black money on Friday since the demonetisation, with I-T officials confiscating about Rs 106 crore in cash and 127 kg in gold from a Chennai businessman and his associates. In two other raids, the I-T department found Rs100 crore in an Axis Bank branch in Delhi, and Haryana police officials caught three men with Rs 17 lakh in new currency notes, according to the report.

A cartel that converted black into white with a hefty 35 percent commission was caught in Mumbai, a fake currency racket was busted in Hyderabad, a doctor in Kolkata's tony Salt Lake area was found hiding wads of new Rs 500 and Rs 2000 notes worth Rs 10 lakhs in his chamber while I-T raids in Bengaluru unearthed Rs 152 crore of unaccounted wealth in new notes, old notes and bullion. In between, Enforcement Directorate has arrested two managers of a private bank for assisting the corrupt in laundering money. The picture isn’t pretty. We can only imagine the extent to which laundering has gone undetected.

These cases reduce the moral strength of the fight against black money. People, who have been very patient so far and have withstood extreme inconvenience with a degree of support and stoicism, may soon be feeling disillusioned. While previous opinion polls had indicated huge support in favour of demonetisation, fresh data from a new opinion poll suggests that the public support may be waning.

According to new data from a Huffpost-BW-CVoter opinion poll, "proportion of people who said that the pain of demonetisation was worth the stated aim of curbing black money continued to fall for the third straight week, while in semi-urban and urban India, support that was growing might now be reversing. Support fell the fastest among the poor and the middle class, and fell slower among the rich." The poll's margin of error is +/- 3 percent at the national level and +/- 5 percent at the regional level.

While demonetisation is an ongoing exercise that may throw new revelations each week, these findings do indicate that the government has less space to play around with unless some stability is quickly restored. Is corruption getting the better of good intent?

Updated Date: Dec 10, 2016 17:02:09 IST