Demonetisation: Will Narendra Modi wage larger battle against black money or stick to small wars?

There are two aspects to the current debate on demonetisation. One, whether the chaos and the panic that set in among the average citizens (not hoarders of black money) after the prime minister declared the high denomination currency notes invalid for transaction could have been avoided, or minimised, with better planning and preparation?

It is possible that the government agencies could not assess the scale of hardship the common man would face after the prime minister’s announcement. Why couldn’t it be better planned? Why didn’t the government (or the RBI) introduce the new Rs 500 and Rs 1000 notes (or Rs 2000 notes, if you like), with improved security features a month or two before the demonetisation plan was announced?

Issuance of new notes with improved features is a recurrent feature adopted by the RBI from time to time. This time, too, it would have been taken for a routine upgradation of our currency notes, as has been the practice in the past. In that case, the ATMs would have functioned normally; the banks and post offices would have been well-stocked with currency stocks of all denominations. The common man would have been spared the agony of standing in the queue for ten hours to withdraw or exchange two thousand rupees from the bank.

Demonetisation: Will Narendra Modi wage larger battle against black money or stick to small wars?

File image of Prime Minister Narendra Modi. AP

In that case, the opposition parties could not have put the government on the mat on this score. But, clearly, the government agencies lacked the imagination. True, they did not have a precedent to fall back on. In 1978, the Morarji Desai government had demonetised the Rs 5000 and Rs 10,000 currency notes. But the common man then had very little to do with such high denomination notes (after all, the average monthly salary of a college teacher then was Rs 200, and the average labourer earned a daily wage of Rs 2). But when the average salary of a college lecturer now is Rs 1,00,000, and the average daily wage earner makes Rs 500 a day, the 500 and 1000 rupee notes are, at least, the urban India’s mainstay. That explains why the life in urban India, if not in rural areas, has gone haywire for people who have little to do with black money.

The second aspect of the demonetisation debate is the extent of its impact in eradicating black money.

The question is, is the Union government’s decision to demonetise the Rs 500 and Rs 1000 currency notes a virtual ‘surgical strike’ on black money?

The government and the ruling party think so. If Narendra Modi-Amit Shah-Arun Jaitley are to be believed, the domestic black money has run out of steam after this ‘bold’ and ‘decisive’ and ‘unprecedented’ action.

But if you ask Rahul Gandhi, Mamata Banerjee or Arvind Kejriwal, they would dismiss the demonetisation move as a closet operation to help the rich at the expense of the poor.

Where does the truth lie? As always in such political slugfest, the truth lies somewhere in the middle.

It is true, as the opposition leaders argue, demonetisation of high-denomination currency notes does not automatically strike at the root of the black economy. It must be kept in mind that hoarders of black money do not just let it lie as bundles of cash under the bed or in the almirahs. That is both dangerous and counter-productive. It is dangerous because large piles of cash are bound to attract unwanted attention.

As a Hindustan Times report tells us: “One of the reasons why tax evaders and corrupt public officials prefer not to stash cash could be the sheer logistics of it. Rs 1 crore in Rs 1,000 notes, if stashed evenly, occupies one square foot and weighs 13 kg. Rs 100 crore would weigh 1.3 tonnes and occupy an area the size of a three-wheeler goods carrier, making the movement of cash without detection difficult.”

The Hindustan Times report goes on to say, quoting finance ministry sources, that “ill-gotten wealth mostly enters the formal economic system through real estate and shell companies.”

The Hindustan Times report corroborates this argument with its analysis of tax raids data since 2012-13. It finds that the amount of cash recovered is less than 6 percent of 'undisclosed income seized from tax evaders.

This report dispels the motivated propaganda — it could be borne out of ignorance as well — that black money has been wiped out in one fell swoop with the demonetisation scheme. Yes, six percent of the black economy has been taken care of. The government has to make decisive moves to unearth the rest 94 percent.

That is a huge challenge. It is because in India the black economy is not just a parallel economy dealing with drugs or arms (that would have made the task easier for the state to take on a handful of drug lords or arms dealers), it is mostly intertwined with the white economy. That is why it is a more challenging task to unravel the twisted knots — to separate the good from the evil, the white from the black.

If the Narendra Modi government is determined to strike at the roots of the black economy, it just has to take one bold decision — to make the names of the donors to the political parties public. The bulk of the contributions to the political parties is generated through black money. That explains why political parties of all hues, the Congress, the BJP, the SP and the BSP or name any other party, all have stubbornly resisted the proposal to bring them under the RTI.

These parties hide under the pretext that they submit the details of the contributions they receive to the Election Commission every year. But the political class as a whole has devised a mechanism to ensure that in all such submission, there is a loophole to hide relevant information — the loophole ensures that parties are duty-bound to submit only the names of donors who have paid Rs 20,000 or more. All parties routinely claim that the hundreds of crores of rupees they receive are an aggregation of small donations, all less than Rs 20,000 each. That is actually the black money that turns white through the political channel (political parties do not have to pay taxes on their income).

If Narendra Modi decides to choke this segment of the black money, that would be a decisive battle against corruption.

Will the prime minister rise to the occasion to wage the bigger battle against black money or will he remain content by waging little wars?

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Updated Date: Nov 15, 2016 09:36:04 IST

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