Demonetisation is not the last word

After the November 8 demonetisation move, which has shaken the hoarders and black marketers, not to mention corrupt politicians, what next? Prime Minister Narendra Modi informed the BJP Parliamentary party this week that his fight against the black money will continue as this was not the end but the beginning. “Next year will be a ‘Naya Saal, Naya Bharat’”, assured the Prime Minister on Tuesday.

Modi asserted that many more financial surgical strikes would follow observing that "Some people think that after December 30, this all will end. I want to declare this once again that after the end of this scheme, there is no guarantee that something else will not be introduced to get rid of such people." This has poured cold water on those who were looking forward to “business as usual” after the year-end.

The next logical and corollary move to curb black money could be to bring back the money stashed away abroad, promised by Modi during the 2014 campaign. But this is only work in progress.

Another strong measure could be to tackle the black money mostly parked in jewellery and benami properties. Modi rightly told a public meeting in Goa recently: “We will take action against benami property. This is a significant step to eradicate corruption and black money.” Benami properties are registered in the name of third parties by the anonymous owners to hide wealth.  The authorities might use the amended Benami Transactions (Prohibition) Amendment Act to step up campaign against black money.  

The demonetisation will not be beneficial unless it is followed up with the much-required tax and financial reforms. There are speculations that income tax may be scrapped and replaced with Banking Transaction Act, which could bring much more people into a different kind of informal tax net. There is yet another suggestion to introduce expenditure tax. Many more measures could be formulated.

Last but not least, the campaign against the black money will not be complete without addressing the much-needed electoral reforms. Modi has been talking about holding simultaneous Assembly and Lok Sabha polls to cut down the expenditure and to combat corruption. Elections generate a lot of black money as voters are lured with money, liquor and gifts. Statistics show that out of a total of Rs 52.02 crore cash seized during the 2012 Assembly polls, UP accounted for Rs 37.46 crore in cash seizures, Punjab Rs 12.13 crore, Uttarakhand Rs 1.36 crore, Goa Rs 60 lakh and Manipur Rs 47 lakh. The funding of the parties should be made transparent. 

The political parties should be brought under the purview of the RTI and also asked to submit their accounts to the income tax authorities. The ultimate aim should be to move towards state funding of elections. There are enough reports to go for electoral reforms. The Inderjit Gupta Committee had endorsed partial state funding but only for national and state parties. The Second Administrative Reforms Commission in 2008 also recommended partial financing of elections. The Law Commission’s 2015 report supported providing subsidies in kind and even amending the Act.

But before all that, the present confusion and chaos that has followed the demonetisation should be addressed. No doubt that the preparations for the aftermath were less than adequate. It is understandable that prior notice could not have been given, provided the secrecy of the move. But did the Reserve Bank not visualise the magnitude of the requirement of new notes and the banks were equally unprepared. Can the Reserve Bank print the new notes to replace the old notes and also distribute it within the fifty-day time frame sought by Modi? 

Experts say that it may take much longer to ensure a smooth money supply. Unless this is guaranteed, the government is likely to face the public fury. The government may have to walk an extra mile to mollify the people who are willing to put up with the inconvenience for a few days in the hope that it will be sorted out soon. There is every need to make sure that the common man does not suffer. With public support, Modi hopes that he can go forward with his reforms. If demonetisation and the other measures envisaged can bring in even 20 to 25 per cent of the black money into the legal system, Modi's purpose would be mainly achieved, but it is a daunting task.    

A teary-eyed Modi had said in a speech in Goa recently, “Cooperate with me and help me for 50 days and I will give you the India you desired.” Unfortunately for Modi, the opposition is on the warpath on the demonetisation issue and will keep it alive. They have intensified their struggle inside and outside Parliament as they are making use of the inconvenience suffered by the common man, as the money supply position has not eased even after 15 days. The only way to resolve this is for the government to speed up its delivery of currency notes to the banks and the ATMs.

The moral of the story is that while the demonetisation is a laudable step Modi should be cautious while taking up the follow-up measures in fighting corruption, as vested interests of various sections are deep rooted.