Demonetisation: As raids, amnesty schemes hardly got the desired results, Modi had to bite the bullet

Some in the opposition and the commentariat insist that the Modi government did what many school teachers do - punish the entire class for the wayward ways of one or a few students. It is not only unfair to the well-behaved students but an admission of inability of the teacher to monitor the class properly. [caption id=“attachment_3108532” align=“alignleft” width=“380”]  Prime Minister Narendra Modi. PTI[/caption] The government too is supposed to track the tax evaders through economic intelligence gathering. Demonetisation is a catch all net in terms of inconvenience caused to the honest. But the Modi government had no choice but to take the most unpalatable step. Income tax raids haven’t yielded much in the past what with the wily tax evaders taking advantage of the lack of a meaningful and fool-proof anti-benami law for properties gotten on the sly within India and banking secrecy laws in dubious foreign offshore tax shelters through the subterranean hawala route. Though these findings of the CAG were in 2006 things haven’t changed for the better over the years. The recent activation of the more meaningful anti-benami law was perhaps a prelude to the clean up drive the Modi government has started but it will pay dividends in the medium and long term at best. Something had to be done to address the overhang of yesteryears. Besides, blanket exemption to agricultural income has been tantalising the crooks and city-slickers to don the robes of gentlemen farmers with a view to laundering their black money. Amnesty schemes have been tried ad nauseam but the catch hasn’t been much to write home about either. Under the recently operated Income Declaration Scheme 2016, Rs 65,250 crore were declared which translates into a revenue to the government of Rs 29,362 crore.  The best response was received by VDIS 1997 under which the tax collected was Rs 33,000 crore thanks to the option to backdate the value of the assets declared.  Die-hard tax evaders have been laughing up their sleeves and thumbing their noses at the last-opportunity- to-return- to-the-path- of-rectitude admonition de rigueur in successive schemes. At any rate amnesty schemes are innately unfair to the honest taxpayers while mollycoddling the devious with pardon from penalty and prosecution and sometimes with soft rates vis-à- vis the normal ones. In the event, the Modi government had to bite the bullet and launch the only option left– -demonetisation of high value currency notes. Demonetisation calls the bluff of the tax evaders where raids and amnesty schemes fail. But then there are loopholes. Charitable and religious trusts as well as political parties enjoy income tax exemption in the country, and they can be counted upon to help the crooks launder. One can expect them to make a beeline in large numbers to bank counters for depositing the demonetised notes in the last week of December 2016 bulk of which could be the high denomination currencies belonging to crooks with right connections. The Modi government could have spared itself the blushes and embarrassment by quickly putting in place an alternative currency regime hot on demonetisation of Rs 500 and Rs 1,000 notes on the midnight of 9 November 2016. The new Rs 2,000 and Rs 500 notes could have been introduced immediately had their dimensions been such that the ATMs didn’t need any recalibrating. The marketing gurus’ advice is always this– -don’t advertise or launch a product unless it is available on the shelves. This message has a larger application but the Modi government seems to have not heeded it. It should not have announced new currencies without them being available behind bank counters and inside the ATM machines. That would have ensured smooth transition sans birth pangs. It is all fine to exhort people to deposit the demonetised notes into their bank accounts. Indeed many are regretting having done so too early because now they have to jostle for withdrawal in dribbles and driblets of their own honestly earned money. There are some cynics who say the demonetisation scheme is a case of operation success but patient dead. No, patient is not dead though people’s patience is admittedly ebbing out. Rather it is a case of superficial preparedness in implementation. In the event, demonetisation is a loose canon has come to acquire a ring of truth whereas it need not have been so.