Faith shaken, not stirred
The Reserve Bank of India, directed by the Centre, has once again changed the terms of the demonetisation scheme announced on November 8 in the name of scrutinising bank accounts. In its latest circular issued on Monday, the Central bank stated that deposits of above Rs 5,000 in old currency notes of Rs 500 and Rs 1,000 can be made only once until December 30. Moreover, people can only deposit more than Rs 5000 in their bank accounts in scrapped notes if they can satisfactorily explain, in the presence of two officials of the bank, why they have not deposited their money till date. Concurrently, people are encouraged to put their scrapped notes into the new amnesty scheme for undisclosed income, which comes with an automatic 50 per cent charge in taxes and penalties.
One wonders what happened to Prime Minister Narendra Modi’s promise to the nation during his speech on November 8. “Persons holding old notes of 500 or 1,000 rupees can deposit these notes in their bank or post office accounts from 10th November till the close of banking hours on December 30, 2016 without any limit,” he said. “Thus you will have 50 days to deposit your notes, and there is no need for panic. Your money will remain yours. You need have no worry on this point.” In a further amendment to the Prime Minister’s announcement, the Finance Ministry later added that it would scrutinise deposits of more than Rs 2,50,000, but anyone putting money below that amount would be free from harassment. From Rs 2,50,000, the threshold for scrutiny has been dramatically reduced to Rs 5000. This is yet another promise broken by the government. The underlying assumption here seems to be that anyone who hasn’t deposited invalidated currencies in their bank accounts until now is a hoarder of black money.
As argued in these pages, the whole demonetisation drama is gradually turning into a Kafkaesque nightmare. The latest circular has quite naturally left many bemused. It provides no indication as to what a satisfactory explanation to bank officials entails. Can someone cite the serpentine queues that have grown around the banks since November 9? What about the government’s promise telling people they have until December 30 to deposit their old notes? What’s worse, the circular provides no explanation on what would happen if the bank officials are not satisfied with the account holder's explanation. Too much discretionary power has been left in the hands of bank officials, and they are no investigators.
In his explanatory letter to a bank, political activist Yogendra Yadav has written: "I have made no cash deposit in my account since November 8, 2016. I see no reason to offer any special explanation for the same [for making the deposit now]. I normally wait for the queues to end. I was assured by the Prime Minister, the Finance Minister and the RBI that there was no need to rush to the banks and that I had until December 30 for making any deposit. I believed them." The operative phrase here is ‘faith in our institutions’. This latest notification has once again shaken the people’s confidence in the government and a Central bank that has issued new rules on a daily basis since the scheme was first announced.
If the latest notification seeks to attack hoarders, the move seems akin to closing the barn door after the horse has bolted. Black money hoarders have already deposited their money earlier by creating fake accounts, as was witnessed during a recent income tax raid at an Axis Bank branch. As media reports indicate, hoarders of black money in cash have more or less finished their business with banks and various financial institutions. Moreover, as numerous studies have shown, only a small portion of the black money is stored in cash. Faced with bank officials, who now enjoy discretionary powers above and beyond their remit, it is the common man who will be harassed, some of whom would have waited for the queues in banks to get shorter to deposit their old currency savings.
If the sum saved is above Rs 5000, they will have to justify depositing their own money to some random bank official. Institutions responsible for the economy are expected to guarantee their citizens stable and predictable conditions for honest citizens. In this case, these institutions are the government and the central bank. Although much-maligned, former Prime Minister Manmohan Singh made a prescient observation in Parliament days before Monday’s announcement.
“It is no good that every day the banking system comes with a modification of the rules, the conditions under which the people can withdraw money. That reflects very poorly on the Prime Minister’s office, on the Finance Minister’s office and the Reserve Bank of India. I am very sorry that the Reserve Bank of India has been exposed to this sort of criticism which I think is fully justified,” he said. Even if one is not an ardent admired of the former Prime Minister, these are some hard truths. The government needs to get its act together soon.