The Modi Government has taken the demonetisation decision in all sincerity. But the poor need a foolproof system, a cushion against inflation, and the same safe and easy operability as cash promises. The administration must move fast in this direction
Poverty sells even after 46 years of the “Garibi hatao” slogan was first given. Prime Minister Narendra Modi’s demonetisation decision is being seen by the marginalised and the middle class as another opportunity to end poverty and establish equity in a highly iniquitous the society.
But there is a galore of problems. Those at the lower end of the spectrum are suffering. The shopkeepers are unable to sell products on cash payment. Jewellery shops have been closed since 20 days. The export business has been hit. Food Corporation of India is paying higher procurement prices for wheat. It has jumped from Rs 1,900 to over Rs 2,300. Other farm produces are getting expensive.
Business has come to a virtual standstill, provoking Tata group chief Ratan Tata to react sharply. Depositors are unhappy as the cash flow touches over five lakh crore rupees in banks and another Rs 33,000 crore is realised in cash exchange till November 18, and their deposit rates are being slashed. Most of that possibly is home savings.
Some say they are losing faith in banks, more so as over six lakh debit cards were blocked in October as data had been compromised. Electronic transaction witnessed a larger number of frauds, including credit card cloning, misuse of debit cards, as also steady rise in site-cloning.
The international system has yet to resolve the $89 million electronic fraudulent transfer from Bangladesh. If deposit rates continue to be slashed and transactions remain risky, why should people keep their money in banksIJ People have started seeing the banks as agents of the super rich. They write-off their large loans, granted out of savings of the poor. The Rs 12 lakh crore NPAs are being seen as swindling of their deposits. Is not demonetisation stacking up the banks’ kitty and heaping problems on the poorIJ The poor are unable to access their own money.
Cash has vanished from the cash-only Indian market. People may not be now queuing up at banks and ATMs. But there is also no money in these. Ask how they feel, and the answer is that there is indeed a problem, but “at least the Prime Minister is doing something good. The poor will have a chance now”.
A mid-level farmer in Kannauj, in central Uttar Pradesh, says farmers are facing problems as their cash has been exhausted. The local market is non-functional but the labourers and the marginalised are happy because their employers ‘are in distress’.
The small kisan is happy as his debts have been repaid by the same rich man with old currencies. He can repay him without an interest. A trade leader in Kanpur, agreeing to this theory, says that farmers and the trading class normally keep cash for easy transaction and they have paid tax on their income. “The ban on exchange of notes is hurting them. It is not black money.”
A Minister says that, instead of paying salary to his staff, he is keeping bundles of Rs 500-blank cheques. The shopkeepers fill it up with their names.
An octogenarian woman in west Delhi burst into tears on November 9. She had saved Rs 45 lakh from her husband’s and son’s incomes over decades to give gifts to her grandkids and acquaintances. Women, mostly reacting sharply, say that the decision is impractical. Nobody understands the plight of women. None consulted a woman even in high positions before such a severe act. Also, many women do not like to go to banks.
Even Rashtrapati Bhavan wants cash! It sought Rs 64.50 lakh cash from the Finance Ministry to pay salaries to the staff in November. It was granted. Union Minister for Finance Arun Jaitley also accepts that the move has slowed down the market but that after a short phase it would help the country cleanse black money. The Centre for Monitoring Indian Economy (CMIE) says the retail market would take a Rs 1.28 lakh crore hit and banks Rs 35,000 crore, forcing banks to raise charges. International rating agencies, Fitch and Moody’s are sceptical too.
Will India’s poor be a happier lotIJ It is difficult to say. Since 1971, even after the nationalisation of banks, and many other schemes, poverty has increased in absolute terms. The average income of 87 per cent of Indians, as per official data ranges, from Rs 5,000 to Rs 10,000, equivalent of Rs 100 to Rs 500 in 1971.
The poor also experienced severe inflation after the 1971 ‘Garibi hatao’ slogan. It touched over 13 per cent in 1974. The recent supply constraint, delayed sowing and stranding of trucks, have resulted in the prices of cereals rising. People wonder, if this trend continues, after a record wholesale prices fall, how will they brave the situation.
The rupee is losing its value post- demonetisation. On November 11, it was Rs 66.72 to a dollar. On November 24, it sunk to Rs 68.75, with the market predicting a further fall. It is just not because of the hope that the US Federal Reserve is likely to hike interest rates. Market is agog that demonetised notes are being exchanged for dollars. In the unofficial market, a dollar is said to cost over Rs 70. It has led to speculation that future black money would be held in dollars, euro and other foreign currencies. It is also an indicator that the currency is losing international trust.
No reliable estimates are available on the distribution of untaxed income. It can at best be around four per cent — equal to those paying the taxes. Since the average income is low in India, most people don’t fall in the tax limit. A glaring example is the seizure of Rs 3.5 crore from a chartered flight from Hissar to Dimapur, said to belong to a Nagaland politician. Since he does not have to pay income tax, being a tribal, the money was returned to him without demur.
Therefore, black money can be turned to white — if one does not have to pay tax, as people in North-East or a farmer; or if one pays tax on the black component. Income tax collection is a pittance of around Rs 1.75 lakh crore. Its collection charges are the highest in the world. This has created an army of corrupt officials.
The easiest thing would be to do away with income tax or cut it to 15 per cent. More money would flow into the market and boost growth. Another ill-advised move was to have tax deducted at source on bank deposits. More the finance is shackled more is the problem for the economy.
The Government has taken the demonetisation step in sincerity. But the poor need a foolproof system, a cushion against inflation, and the same safe and easy operability as cash promises.
(The writer is a senior journalist)
