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Demonetization done; taxes next - Prasoon Majumdar - The Sunday Indian
 
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Black Money

Demonetization done; taxes next

 

PM Modi should now focus on rationalising taxes as his next step
PRASOON MAJUMDAR | Issue Dated: January 5, 2017, New Delhi
Tags : PM Modi | Demonetization |
 

I do not remember of any national phenomenon as the way demonetization has impacted every citizen in our country. I was too young to remember days of emergency in the late 70s or the demonetization that happened during the regime of our then Prime Minister Shri Morarji Desai. So I would not remember the manner in which citizens reacted then, but this time, the masses are in sweeping support towards this move, more so because they are happy that irrespective of their own sufferings on account of lack of currency supply and the challenges therein, they are happy that the rich and mighty, who have had a free run all these years and had amassed obscene amounts of black money, had been finally nailed by our current Prime Minister. Well, it was his message that this step has been taken to counter black money, counterfeit currency and terrorism. 

I do not have much idea in terms of how issuing of new currency would stop counterfeiting. Though I have read that there have been multiple security measures that have been taken with respect to the newly issued currency in order to stop counterfeiting, but still, I do not have clarity with respect to how would it stop the practise. It might take a lag time for the counterfeiters to print fake notes, but to stop it completely? That still goes beyond me.

Of what I have read so far and understood, as per RBI, the estimated amount of Rs. 500 and Rs. 1000 currency in the economy was around Rs 14 lac crores. Of this, the government had estimated that it would be able to mop up around Rs 10 lac crores; and the rest, which experts believed predominantly as the black money, would have been a bonus for the government to allow it to budget for a complete overhaul of the economy. However contrary to the estimates, out of the entire currency circulation, as per some latest reports, around Rs 13 lac crores have already been deposited in the banks. And as per some estimates, till December 30th 2016, this figure is likely to go up to Rs 17 lac crores. Which means that people who had black money, have found ways and means to convert their black money into white. Now, this means we as a nation are at the threshold of a scary situation.

Tackling this in itself would be a huge challenge for the PM, more so because this entire change has not gone down well within the political fraternity, including his own party members, for obvious reasons. And any failure in this direction would mean a political suicide for the PM. Considering that the PM had the right intentions in place and that the so called black money hoarders have got the better of him, it is important to understand that why as a nation, we are conditioned to accumulate black money. And why this black money is so dear to us?

I understand that black money has got accumulated at three levels in our country and that too over decades. The first being the political class who have been so bad at their own work that whenever they got to power, they sucked the maximum they could, fearing that this is their last chance to be in power. The second category is the entire administrative machinery who took advantage of the licence raj and control regime and arm twisted everyone at their mercy. The third category is people in business who needed the black money to ensure that they survived the government and the governance. And the only way they could do it was by evading taxes or by producing black goods and services. The masses remained at the receiving end throughout. So what evolved was a huge trust deficit between the various stakeholders of the economy with respect to the political and administrative machinery. So our PM thought that by demonetising he would be able to clean up the huge monster that has been created in one stroke. And to say the least, he has gone wrong in terms of understanding fellow Indians. I do not know whether he realizes that the people who were blind supporters of him, particularly the business class, have turned into staunch critics!

The entire aspect of demonetization and the entire way it is getting executed has apparently come across as more of a myopic dictatorial stance than a long term systematic way to clean up this mess. With such a mess of an execution, it is not long that the tide can completely turn against him even from and within these masses. So ideally, along with whatever he is planning to do. he should necessarily rationalize the tax rates across the board. By doing so, two things are going to happen. First, he can also earn the confidence back from that section of business class who have gone against him. Additionally, if everyone pays taxes, then the administrative departments too would not have any reasons to extract money from people. Though a major part would still remain in creating adequate infrastructure so that no-one is required to grease the palms of the bureaucracy to get any kind of work done. And this isn’t difficult when the government is flush with funds. This may be a mammoth step for the PM, but with so much of cash surplus available, it is a chance worth taking. It is all about taking the first baby step towards gaining the trust of Indian businesses and masses at large to ensure that they in themselves strive and align themselves to create a cleaner India.  

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Issue Dated: Feb 5, 2017