Desperate to attack black money
Having failed to fulfil a major May 2014 poll promise to end the black money menace within a month, let alone the “achhe din” now quietly buried, Prime Minister Narendra Modi has now moved to slay that demon by demonetising Rs. 500 and Rs. 1,000 currency notes.
While desirable and widely welcomed, it has also set off a prolonged spell of chaos for honest millions and small businesses, in particular, to exchange old notes for the new ones to be issued at besieged bank or post office branches for weeks and maybe months. His Party (BJP) trumpets it as another "surgical strike", Mr. Modi makes it evocative "Mahayagna" in which the people should willingly join and bear the hardship.
It is another call for patriotism by a Government which has found it too challenging so far to grow the economy, revive investments, and create jobs. The Prime Minister listed over a dozen schemes, which are said to help banish poverty. Many such schemes floated earlier by the cursed UPA are rehashed and announced with fanfare.
His speech is redolent of the play of politics firstly to overcome the disenchantment with the Modi governance that is building up with all the social tensions triggered by Hindutva outfits, intolerance and any valid criticisms of NDA policies being dubbed "anti-national", even seditious in some cases. The media in general stands cautioned in our democracy, the largest in the world.
Our highly gifted Prime Minister can twist history and make it appear for everything that India has entered a new dawn in 2014 after his spectacular triumph leading the BJP for a majoritarian hold over the nation. The declared aims on his development agenda, if our understanding is correct, are to bring about transformative growth through structural reforms and smart cities and a digital India run on the cash-less economy.
Where do the rural masses, the under-fed, under-educated and deprived of basic health- care figure in all this? But Mr. Modi's accent is always on “pro-poor" policies his Government has been making, including a doubling of rural incomes in the next decade. Thankfully, he assured the people on November 8 that Re. 1 to Rs.100 notes will continue to be legal tender.
But he conveniently ignores the fact that after years of high inflation and currency explosion and wage rises in organised sectors, the 500-rupee notes have the widest spread and use for essential goods purchases. This is what would hurt large sections of consumers and small entrepreneurs.
Tax authorities are keeping a close watch on deposits of the demonetised notes and would begin to examine cases of large amounts re-entering the banking system, for any mismatch with income declared by the account-holder in his tax return. In such situations treated as tax evasion, officials have said that there would be tax and penalty.
The Finance Minister Mr Arun Jaitley has admitted that replacement with new notes could be not equivalent to sums deposited in first few weeks in banks and it may take two to three weeks for more currency notes to come into the market. Business is already at a standstill at many places in the country as no trader would accept old notes.
In his view, such inconvenience has to be borne because a parallel economy with black money cannot be allowed any longer. Firstly, whatever the Finance Minister avers, time will tell us how effectively the surgical skill has worked, let alone the hardship to the people who have yet to see benefits of Modi regime in the day to day life.
For Mr Jaitley, who is yet to settle with States issues of devolution of GST revenues and payment of arrears to loss-making states, the satisfaction derived is the expected boost in tax revenues from more transactions coming under tax net under both direct and indirect taxes. He also hopes the parallel economy would be narrowed for the benefit of the formal sector.
The Prime Minister projected his "strong and decisive step as one to fight corruption, black money, fake notes and terrorism. There is no doubt that counterfeit currency is being put in circulation from across the Pakistan border and used by terrorists. It needs to be dealt with sternly. By bearing "temporary hardship", the PM says, every person would be making a contribution to the "mahayajna", designed to rid the country of corruption and black money.
The Modi Government is certainly entitled to expect recognition and support for this move which would be beneficial to the economy and polity. It has an underlying note of warning for government officials and politicians fighting elections, in the Prime Minister's reference to "cash stashed under beds of bureaucrats or found in gunny bags".
However, all this cannot cover up the lack of growth pick-up so far and absence of real inclusive growth.
(The views expressed are strictly personal.)