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8/11 IMPACT: Uprooting OF the Parallel Economy

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“Indecision becomes decision with time.” Anonymous

Indecision often leads to aggravation of the core issue. An example of this is visible from the level of corruption and black money (which has created a parallel economy) that exists in our country. The roots of this economic epidemic have clawed the entire nation, where nothing moves unless palms are greased. This reminds us of the famous television satire series “Chala Mussaddi Office Office”, which highlighted the plight of a common man, fighting the deep rooted corruption in our systems. It’s not to say government didn’t try to curb this earlier, but the tools used were rather weak. The income declaration scheme (IDS) and other measures did little to address the challenge. With the Prime Minister Modi demonetising the Rs 500 and Rs 1000 denomination currency notes, the impactful blow on the black money can be heard loud and clear, which would go down in the history as 8/11. It was time to take some decisions, and we are glad that it finally arrived, in our life time.

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The declaration of demonetising came as a terrible blow to the black money hoarders, not because of the demonetising itself, but the way it was done. With the announcement in the evening and its implementation within few hours, left the hoarders little time to think on the way out, and within few hours both the currency notes ceased to be a legal tender in the country. The newspapers had reported large number of people flocking at the jewelers to convert cash into gold, the day the announcement was made till the morning of the next day. Considering the happenings, it does seem like that the avenues to use the stashed black money have reduced considerably, which in itself is a positive sign.

Demonetising is not something unheard of. Back in 1978 too, the government in order to curb the issue of back money and forgery, had decided to demonetise the Rs 1000, Rs 5000 and Rs 10000 currency notes. However, comparing 2016 with 1978, the situation has drastically changed. Large denominations were a rare possession then as compared to the possession status of Rs 1000 currency note today. Removing the bigger denomination currency notes from circulation does present a few advantages in controlling the black money but it’s not a panacea to solve the entire problem. It’s just the beginning…

ALSO READ: This Delhi man exchanged Rs 20,000 in Rs 10 coin denomination

Effects of Demonetisation
Demonetisation has narrowed the scope for use of black money for initial couple of years. Earlier, the money which could buy expensive vehicles, real estate, etc, is now struggling to be spent. The only options the hoarders had, that too for a few hours, was to buy gold, which too has now lapsed. Now the stashed currency notes stand risk of becoming obsolete, if not utilized in some or the other way. Further the government has come up with a statement that any deposition of above 2.5 lacs would come under the Income Tax Department scanner, and anything above 10 Lac of deposit, which doesn’t match the individual’s tax returns, will attract a penalty of 200%. The black money hoarders had one last chance to declare their undisclosed income, till the end of September 2016, under IDS. With IDS not applicable anymore, it seems the hoarders must be ruing the missed chance as now, as they have absolutely nowhere to go.

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What’s next?
Given that the current Government has been pushing the agenda of becoming a Cashless Economy, the agenda has been given a unforced push owing to the recent happening. What is needed to be ensured is that this small push does not go waste. The government should quickly create incentives to promote digital use for making financial transactions. Currently, a number of charges are applicable on online/card transactions, which needs to be relaxed (at least for the small value transactions) to encourage more people coming on board the digital payment platform.
Apart from this, the biggest contributor to the black money menace has been the election funding. Party funds are hard cash reserves, coming from undisclosed and unaccountable sources. A Centre for Media Studies report showed that nearly Rs 30,000 Crore was spent during the 2014 general election, while official spending only accounted for Rs 7,000-Rs 8,000 Crores. These funds need to be regularized, if the issue of black money has to be rectified, once and for all. There is a need to introduce transparency in the election funding process. The political parties should not only disclose the sources of funding as donations and others, but should also ensure limited dependency on cash. But what is needed for its effective implementation is “Political Will”. One wonders if there is enough political will in our political system.

ALSO READ:Demonetisation to bring probity in politics, govt: Rajnath

Finally, with GST soon to be implemented, the government should explore the possibility of mandating all large value transactions through online means. These transactions have historically been transacted in cash, which have presented opportunities for black money. If these transactions are digitized, the problem of black money would be curbed to a large extent. Thus, the solution to most of the problems lie in the transition shift from cash based economy to a cash-light to a cash-less economy.
Thus, it is important for the government to not stop at this juncture where the economy is already going through a transition, with most of the cash sucked back. At this point, it is important to hammer in the next wave of reforms, which enables the shift towards cash-less society.

Authors Udai S Mehta & Rohit Singh work at CUTS International (www.cuts-international.org)

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