Persisting absence of clarity
BJP president and Rajya Sabha member Amit Shah may be absolutely right in his assessment that demonetisation has forced black money into formal economy even as RBI's annual report said that 99 per cent of scrapped currency after the demonetisation were deposited in banks. Shah had recently told businessmen at a special FICCI session in Delhi that the formal economy would now grow and black money would be scrutinised and taxed. However, the BJP president's predictions about both the economic growth and tracing and taxing black money depositors are yet to come true, even ten months after demonetisation. In fact, the economic growth is limping at around 5.7 per cent. Massive imports in the last five months, largely from China, are further choking the growth and swelling India's current account deficit (CAD). At such a slow growth rate, the country would lose nearly $500 billion (Rs. 35 trillion) in terms of actual GDP, if compared to the earlier projected growth rate of over 7.6 per cent, this year. The lower economic growth since November 8, 2016, when the demonetisation of high-value currency notes came into effect, has severely impacted the manufacturing sector as well as services sector. This is despite the fact that the agriculture sector is doing quite well. But for the farm sector's record performance, the GDP growth would have fallen below five per cent, at least till now, this year.
On the contrary, demonetisation seems to have only helped millions of black money or cash money hoarders make their unaccounted currency notes enter the banking system with impunity. The BJP president may not have the full feedback on how exactly the black money in currency notes got turned into white and who were their real owners. Also, the black money in the currency notes form only a portion of the gross unaccounted wealth of rich Indians. The latter are known to hide unaccounted wealth through several other instruments such as 'benami' properties, gold, and jewellery, holding assets abroad through 'havala' transactions, etc.
While it was easy for the income-tax (IT) department to know the recorded sources of inflow of large cash deposits into the formal banking system, little have they achieved in tracing and booking the real culprits and holders of black money despite these deposits. This a matter of true concern. Shah's statement reveals, in a way, the BJP president too is concerned although he is positive about its future impact. However, this is not the first time that India had gone for demonetisation to unearth black money. Under the Janata government, headed by Morarji Desai, also from Gujarat, currency notes of Rs 1,000, Rs 5,000 and Rs 10,000 were scrapped through an ordinance on January 16, 1978, covering only 0.6 per cent of the total currency in circulation at the time. Before that, India had experienced demonetisation of high-value currency in January 1946. On both the previous occasions, the measures impacted only a miniscule segment of the society and economy.
This time, the IT department has at least been trying its best to trace the real sources of large cash deposits with banks after November 8, last year. In February-March, this year, the IT department had shot off thousands of notices at the residences of large cash depositors in banks in the National Capital Region, known as the country's biggest hoard of unaccounted wealth, and also other parts of India.
Few cared to respond, though. Most depositors were fictitious and happily left their 'declared' residences on the bank books under lock and key before moving to some unrecorded addresses. Many did not even care to see or pick up the IT notices. Many of those notices are seen strewn around NCR residential outlets even months after they were despatched. The IT notices were clear. The communications stated typically that "ITD received information records showing total cash deposits of (figures usually in tens of lakhs of rupees) relating to you. The information in respect of these transactions has been made available in the online e-verification portal. You are requested to submit your response regarding the same. Your response has to be furnished through the portal only and there is no need to visit the income tax office for submitting the same. The response can be submitted by following steps below."
The IT notice, then, lists four steps, the first one being the advice to "login to e-filing portal at https://incometaxindiaefiling.gov.in. If you are not registered with the e-filing portal, use the 'Register Yourself' link to register. Step 2: Click on 'Cash Transactions 2016' link under 'Compliance' section. Step 3: The details of transaction(s) related to cash deposits during 9th Nov to 30th Dec. 2016 will be displayed. Step 4: Submit your online response for each transaction and keep acknowledgement for record." The notice further states "Kindly submit your response within five days of receipt of this communication. Please ignore this communication, if you have already submitted the response." The economy, which is still suffering the impact of the massive demonetisation, is yet to know how many of the large cash depositors with banks responded to such IT notices.
The general public, like Shah, is still hopeful that taxmen "will try and fix accountability for some of this money". But, the time seems to be running out and the economic growth continues to drift. Unfortunately, the long-pending GST came in a somewhat half-hearted manner within months of the demonetisation to further add to the woes of economic growth. It may be time for the government to take some real good and innovative measures to expand the economy beyond seven per cent and fix the post-demonetisation, post-GST issues as quickly as possible to move fast forward.
(The views expressed are strictly personal.)