A year after demonetisation, disclosures in the media have served to iterate the point that those who conceal their income do not use cash
On this day a year ago, the nation was shaken as Prime Minister Narendra Modi announced banning of Rs 1,000 and Rs 500 currency notes. The nation continues to debate whether it was a good decision or not. A cash economy was forced to virtually come to a standstill for the promise of a digital economy, for which the nation was not fully prepared. Some new digital payment modes made enormous profits while transactions became expensive with commissions of 1 to 2.5 per cent per transaction.
The poor hoped that it was all for achhe din despite their toil in serpentine queues before the banks for meagre Rs 2,500 and later Rs 4,500 in cash. The ATMs were not operational as the new currency notes did not fit the dispensers. Reportedly, over 1,000 citizens lost their lives while standing in queues. As the note-change process stopped abruptly on December 31 instead of in March, it sent another shockwave. The poor lost again. Many still holding banned notes queued up before the Reserve Bank of India. Small businesses, daily wagers, farm labourers, shops, restaurants, farming activities, barbers and grocers… all came to a virtual halt. Many small entrepreneurs shut their establishments. Still, hopes on and the stock of Prime Minister Narendra Modi were on a high. Everybody thought that it was a surgical strike on the black money. The hope was that a cleaner polity and society would emerge. Uttar Pradesh voted overwhelmingly for the Prime Minister's party in this expectation.
A year after, hunt for black money is getting more intense. The income-tax department is focusing on large cash deposits, failing to understand that all the cash deposited was not black; in fact, it has started an inspectorate system and that again has impeded normal business activity. It appears the political wisdom was overwhelmed by bureaucratic machinations. Those at the end of such raids find that many are unnecessarily harassed. Even village mahajans and farmers are not being spared. They all say that the issue gets “settled” for a price. Demonetisation adversely impacted many farm markets. Potato and vegetable growers were hit hard as the wholesalers did not have cash. The rural economy is yet to come up to the pre-note-ban level. Potato growers from UP to West Bengal remain at the receiving end. Rural masons today are prepared to work for half their wages of around Rs 500 a day that they were getting a year ago. The country has yet to be monetized. And many who had old notes are awaiting a Supreme Court decision to exchange their money. They ask if saving in cash was a crime. There are women who had saved out of their husbands' or sons' tax-paid income. Amounts saved varied. In some affluent families it was up to Rs 50 lakh and in the not-so-affluent in several thousands. These women want to know why they should be punished in terms of inviting harassment for first keeping and then being forced to exchange legal tender.
The Government says that it has paid dividend in tax earnings. It increased the number of taxpayers from 63.7 lakh in 2015-16 to 80.7 lakh in 2016-17. About Rs 10 lakh crore more was earned too, it adds. The Economic Survey (Volume II), however, says that all this increase cannot be attributed to demonetization and is part of the natural-trend increase in new taxpayers. The Survey that says the new numbers are comparable to the pre-demonetisation period; post-demonetisation it notices an addition of about 5.4 lakh taxpayers, one per cent of all individual taxpayers. The addition to the reported taxable income was Rs 10,600 crore. “The average income reported of the new taxpayers was Rs 2.7 lakh, “not far above the tax threshold of Rs 2.5 lakh”. It means only those at the lower end of the income threshold have joined the taxpayer bandwagon, may be as they naturally graduated to the tax-paying level or just to avoid harassment. Though the latest Government figures show some improvements in economic activity, still the fear of slow GDP growth lurks. The official figures of low inflation are a bit different from actual prices, particularly of vegetables and edible items, fuel,
textile and other essential commodity prices.
The linking of Aadhar has also become an issue including that of banking security. The move has been challenged and the Supreme Court is seized of the matter. The UIDAI is also a bit alarmed and has suggested a payments system regulator to allay digital theft fears. Many irregular digital payments have been reported across the country. People resent many restrictions like the recent Indian Railway proposal to restrict one Aadhar to 12 tickets, linking of phones, bank accounts and virtually every movement. The Government forgets that such linkages achieve little though cost on governance increase manifold. The 12 crore Aadhar authentications cited by the Government before the apex court burdens the exchequer. The internet is not free.
Even worse, despite banks getting huge Jan Dhan deposits they are unable to manage such funds. It has resulted in a drastic cut in deposit interest rates, though not so much in lending rates. Senior citizens, women and other vulnerable sections feel that banks are pauperizing them. Despite an atrocious rise in bank charges — the numbers of free cheque leaves have been halved, levies on minimum deposits, higher transaction charges for money transfers — the banks remain in bad health. Their NPAs since 2008 are over Rs 12 lakh crore; almost half has been written off. The Economic Survey (Volume I) says that largest beneficiaries of the lending boom post 2008 were 50 large business houses. These are the issues, many of which were handed down to the Government by the previous regime, that need tackling. Demonetisation only added to the banking cost of replacing the old notes. It is a huge operation and the country is spending over Rs 30,000 crore for such replacement, recalibration of ATMs and remonetisation.
Except for a miniscule tax amount accruing to the Government, the gains of demonetisation are limited. It also raises the question whether cash flow in the system for faster economic activity is more important rather than slowing down economic activity through expensive and, to an extent exclusive, digital payments. Digital payment facility is a necessity for the modern world, of course, and we must be take slow and steady steps on that path, but it should not be the sine qua non for a country like India where there is a great disparity in transaction methods and access to technology. Even Western economies are driven by cash. Cash should not be treated as unholy.
(The writer is a senior journalist)
Demonetisation One Year On
Demonetisation is a big scam. I repeat, demonetisation is a big scam. If a thorough investigation is conducted, this will be proved. The currency exercise was only to convert black money into white for vested interests of the political party in power.
West Bengal Chief Minister Mamata Banerjee
Demonetisation was a watershed moment in the country's history, ‘organised loot’ is what happened in 2G, CWG, coal block allocations.
Union Finance Minister Arun Jaitley
Demonetisation has proved to be a catastrophic economic policy. The damage it has caused has been multiple fold — economic, social, reputational and institutional. Prime Minister Narendra Modi must accept the blunder and work towards a consensus to rebuild the economy.
Former Prime Minister Manmohan Singh
Demonetisation failed. It failed the hopes of all those who stood in never-ending queues for the country. It failed the country. Now, even the intent seems dubious.
Shiv Sena leader Aditya Thackeray
The Government ignored all our suggestions on GST and introduced it with celebrations at midnight. In their GST, the highest tax is 28 per cent and it has three return forms... It is the Gabbar Singh Tax.
Congress vice president Rahul Gandhi