“A leader takes people where they want to go, a great leader takes people where they don’t want to go, but ought to be” – Rosalynn Carter
In a rhetorically rousing speech, Prime Minister Narendra Modi declared an all-out war against black money by demonetizing the 500 & 1000 rupee notes on a cold winter evening of November 8th 2016. While the scheme was termed as a ’surgical strike’ against the black money hoarders by one section of the young and educated crowd, there were scathing attacks and criticism by some political parties for making life of the poorest of poor difficult. Within hours of the announcement 86% of the currency in circulation, which were mostly of 500 & 1000 rupee denomination, merely became useless pieces of colored paper. Although it was a bold and pragmatic approach, the lack of proper implementation has led to chaos, confusion and suffering among the citizens.
The ugly truth is that any consequence, it’s the lower strata that usually becomes the victim and suffers the most. Indian unorganized market, which transacts mostly in cash component, is already in a crisis of confidence and one can sense the impasse mood prevailing in the environment. Since more than 80% of employment is generated from the informal sector which contributes around 45% of the GDP (Gross Domestic Product) a contingency plan from the government for small scale traders, farmers, merchants and vendors would have helped them in shielding their interests. More than 40% of the population does not have access to bank accounts are the ones who are brutally affected by the cash drought.
Demonetization has shrunken the money supply, thereby paralyzing the currency circulation. Although the advocates of the scheme expected that a scarcity of demand would keep inflation in check and also reduce prices, the policy has so far pushed the market into a negative state affecting the stock market, NBFCs and small businesses to a great degree. Though the objective of demonetization was to fight against corruption, black money, fake notes and terrorism funding, inefficiency in implementation has caused extreme distress to the mass that carry out cash transaction on a day-to-day basis. The sizeable impact that demonetization is going to make has also boiled over the brew as it affects only the cash component of it. The other black wealth havens like illicit money that is stashed abroad, real estates where high value benami transactions happen, and gold goes utterly unaccounted under this scheme.
Judging the effectiveness of demonetization
According to Schneider, size of India’s black money economy would stand between 23% -26% of the GDP. The Indian GDP was worth 2073.54 billion US dollars in 2015, which translates to 141 lakh crores. Assuming the percentage of black money to be 25%, the total amount of black money in circulation within the country would amount to 35 lakh crores. A 2012 report by the CBI director states that around $500 billion illegal funds were stashed in foreign markets, which roughly amounts to 34 lakh crores. Of this 69 lakh crores, how much is in cash and in circulation of 500 and 1000 and how much the scheme would be able recover is the intriguing puzzle to be solved.
As per the RBI’s annual report of 31 March 2016 mentions that the total bank notes in circulation is valued at 16.42 lakh crores of which nearly 86% (around 14.18 lakh crores) were in 500 and 1000 rupee denominations. About 25% of black money on the total 14.18 lakh crores amounts to 3.54 lakh crores. Even if the government is able to recover 50% of this currency, remaining being hidden to escape prosecution or deposited into other bank accounts for a commission, the amount recoverable would stand at 1.77 lakh crores, which is 1.22% of the total 69 lakh crores. So is this, a significant achievement for all the drama the scheme has garnered?
In late 2011 the Anna Hazare movement gained a lot of popularity and momentum aimed against the widespread corruption during the congress rule. I still recollect the dark days of administration when the country was going to ruins and just becoming famous for scams starting from 2G, Coalgate, Commonwealth Games to Defence deals scandals. And the rise of Narendra Modi was indisputable who promised to wipe out the extensive corruption that halted country’s growth and development. Although the percentage of impact that demonetization will have over black money is meager, but something is always better than nothing. Although effort does not equal effectiveness, there is still a lot that can be done by the government, not just to save its face among the people but also finish off what it has aspired to achieve, which is very much on the cards.
Now that the government has immobilized the flow of black money to a small extent, its next mission has to completely paralyze this black wealth generation. And for that tougher anti-corruption law needs to be implemented. Firstly, political parties and their funding need to come under RTI subjugation. The nexus between the businessmen and the politicians just before the elections has to be cracked. Secondly, the black money that has been stashed abroad has to be brought back and the people involved need to be named, shamed and prosecuted. A strong RTI, whistleblower’s act, benami property act, land acquisition bill, black money bill, goods and service tax are the need of the hour. This will encourage general public to give out information and also makes the hoarders of black money feel unsafe and petrified.
There is not an iota of doubt that strangling of cash transactions would slowly eradicate the grey economy by preventing money laundering and other illegal activities. Even the RBI has been urging its citizens to make use of Internet banking and digital currency to alleviate the pressure of physical currency. A cashless economy is a distant dream as close to 95% of transactions in the country currently happens through cash. So transforming towards a digital and cashless society is imperative, as it expected to wipe off all the loopholes that are plaguing the public system and governance. Now for the government to gain the trust of people and also achieve the motive behind demonetization, stringent laws and bills aforementioned need to be simultaneously implemented and achieved. And the Prime Minister has already showcased his boldness in actualizing what he has promised in his 2014 election manifesto. Now, the optimists are drooling in eager anticipation of superior governance and administration from the Prime Minister, to make the country proud in the international arena.