It was on 8th November
2016 , the Government of India decided to cancel the Legal Tender Status of
Rs.1000 and Rs.500 denomination currency notes that were in use till that date with
several objectives in mind:
(i)
Flushing out black
money,
(ii)
Eliminate Fake Indian Currency Notes (FICN).
(iii)
To strike at the root of financing of terrorism and left wing
extremism.
(iv)
To convert non-formal economy into a formal economy to expand tax
base and employment and
(v)
To give a big boost to digitalization of payments to make India a
less cash economy.
The Government of India definitely took a very bold step of demonetizing
the existing denominations of Rs.500 and Rs.1000 notes which were in fact 85%
of the total notes in circulation at that time. These denominations were very
convenient tools of transactions for Money launderers, Hawala operators, Real
Estate developers, Economic criminals, corrupt politicians and Officials,
Industrialists and Traders, Terrorist organizations and other International
criminals, in an informal economy. On the other hand the enemies of the nation
were actively planning, as per the reports of the Intelligence agencies, to
completely ransack the potential booming economy by dumping of the fake
currency mainly in these two denominations in very huge quantities, quietly into
the Indian economy.
However, our alert administration of the
Government did not waste time in sensing the hostile threat that would have completely
crashed the Economy, and hence decided to plug out the very Instruments of
Trouble from the circulation before it was too late.
The Revolutionary
implementation of “The
#DemonitizationDrive2016” was a very painful inoculation for the common
masses as well as the business class. But looking to the dangers, internal as
well as external, looming heavily on the horizon of the fourth biggest economy
of the world, all those who loved the nation and were more concerned about the
security threat to our economy, patiently waited thru the whole operation, for
the positive outcome.
Lot of commentaries
have been relayed both within and without the four walls of the Parliament as
well as thru the electronic & print media operated by the fourth estate and
on the social media, by leading experts. They all have been debating and
forecasting a lot of wild issues and glitches, hitches and complications that
the economy could face with the implementation of the highly risky drive for Demonetization.
Let us now make a
humble effort to analyze ~ how and where the currency has traveled in the past
few months, a critical analysis:
The Reserve Bank of
India (RBI) has reported in their Annual Accounts that Specified Bank Notes
(SBNs) of estimated value of Rs. 15.28 lakh Crores have been deposited back as
on 30.6.2017.
The outstanding SBNs
as on 8thNovember,
2016 were of Rs. 15.44 Crores value.
The total currency
in circulation of all denominations as on 8th November,
2016 was 17.77 lakh Crores whereas total currency in circulation as on 4th August,
2017 was 14.75 lakh Crores.
The Government had
expected all the SBNs to come back to the Banking system to become effectively
usable currency.
The fact that
bulk of SBNs have come back to the Banking system shows that the banking system
and the RBI were able to effectively respond to the challenge of collecting
such a large number of SBNs in a limited time.
At the same time,
the effective currency in circulation today is only 83% with full circle of re-monetization
having taken place.
Part I:
Resultant Positive Impacts :
(1) Just 56 Lac new
Tax Payers have been added to the elite list (Otherwise it would have taken
another decade or more to add that many subscribers). As per report of the RBI the
number of Returns filed as on 05.08.2017 registered an increase
of 24.7% compared to a growth rate of 9.9% in the previous year
(2) Just 2 Lac Shell Companies have been identified. (So many firebrand centers of Black money generation have been
clamped down for future)
(3) Cash Circulation down by 17%.
(4)
Hawala Racket has been brought under terrible psychological pressure..., with
the identification of many economic criminals.
(5) Dumping of fake currency from enemy nations brought to a
complete sudden halt...!
"FAKE AND
COUNTERFEIT CURRENCY IS DESTROYED TO THE TUNE OF 23 LAC CRORES .... This happened because fake and counterfeit currency could not
have been deposited in banks for obvious reasons."
(6)
Terrorism clamped under the belt without using a single bullet...!!
(7) Corrupt Officials in the Banking and other sectors also
identified
(8) Necessary regulations have been clamped on the functioning of
the Chartered Accountants as they had been the main source of trouble shooting equipment
that encouraged the economic criminals of all hues and cries to continue with
their past-time without hindrance. They have been made to understand their
sense of responsibility towards the nation.
(9) The common masses have now appreciated the ease in handling and
comforts of the Cash-less economy.
(10) A significant portion of SBNs deposited could possibly be
representing unexplained/black money. Accordingly, ‘Operation Clean Money’
was launched on 31st January 2017. Scrutiny of about 18 lakh accounts, prima
facie, did not appear to be in line with their tax profile. These were
identified and have been approached through email/SMS. Of them more than 9.27
lakh responses were received giving information on 13.33 lakh accounts
involving cash deposits of around Rs.2.89 lakh Crores. Advance data analytics
tools were deployed which further identified 5.56 lakhs new cases and about 1
lakh of those cases in which either partial or no response was received in the
earlier phase. Besides, about 200 high risk clusters of persons were identified
for appropriate action. The Income Tax Department (ITD) conducted searches
on various entities, leading to seizure of cash and admission of
undisclosed income. Since November 2016 and until the end of May 2017, a total
of Rs. 17526 Crores has been found as undisclosed income and Rs. 1003 Crores
has been seized. The investigation/scrutiny is going on.
(11) Growth in the volume of Revenue Collection registered by
the Government as a result of effective Demonetization Drive:
(i)
On account of Tax
collections this year the Government has registered a net increase in the revenue
of more than Rs.2.60 lacs as compared to the previous year.
In terms of Direct Taxes the contribution towards this increase is
of Rs.1.05 lac crores. While towards Indirect Taxes is Rs.1.55 lac
crores.
Historically, the government has never ever registered such a
tremendous growth in revenue collections within a single year…!
(ii)
Another notable factor of
#DemonitizationDrive is that this year in 2016-17 the total increase in
Collection of Income Tax is commendable :
Year 2014-15 ~ Rs. 22,854
Crores
Year 2015-16 ~ Rs. 21,865
Crores
Year 2016-17 ~ Rs. 61,632
Crores
This goes on to
prove that every year there had been a cool loss due to the evasion of Income
TAX to the order of at least Rs.40, 000 Crores.
(iii)
Advance tax
collections of Personal Income Tax (i.e. other than Corporate Tax) as on
05.08.2017 showed a growth of about 41.79% over the corresponding period in
F.Y. 2016-2017. Personal Income Tax under Self-Assessment Tax (SAT) grew at
34.25% over the corresponding period in F.Y. 2016-2017.
(iv)
Besides, the Government registered a phenomenal increase in other
Direct Taxes also by almost 14 times :
Year 2014-15 ~ Rs.1095
Crores
Year 2015-16 ~ Rs.1079
Crores
Year 2016-17 ~ Rs.15,624
Crores
This proves that
every year national exchequer was loosing Rs.14,000 Crores on this account.
(v)
In the Year 2015-16 the Government had anticipated a target of Rs.
7.52 Lac Crores from Direct Taxes. But in reality had collected only Rs.7.48
Lac Crores which was less than Rs.4000 Crores from the Target.
Comparatively, this
year (2016-17), in spite of the depression forced upon the economy as a result
of the #DemonitizationDrive, the Government has collected a cool Rs.8.47 Lac
Crores which is almost more than Rs. ONE Lac Crores as compared to previous
years.
During the period of
#DemonitizationDrive the Department had identified around 18 Lac high net worth
individuals with huge sums of unaccounted money. Out of those only 9.72 Lac
individuals filed their returns and submitted their Tax dues.
Now
out of the remaining 8.25 Lac individuals around 5.5 Lac are those who had
deposited very huge amounts to their accounts. They had been called for
explanation but none of them have replied.
There were another 1
Lac individuals who had camouflaged their various accounts with high deposits.
The department has initiated action against all such Account holders.
It is estimated that the Government should earn additional roughly
around Rs. 1.5-2.0 Lac Crores from such frivolous account holders.
(vi)
Demonetization drive led to significant change of saving habits and
formalization of assets market. Considerably more funds came into the
organized financial markets, whereas earlier households were parking much of
their savings in unproductive physical assets. The savings in the form of
investment in equity mutual funds, life insurance premia etc., increased. The
total assets under management (AUM) of Mutual funds (MFs) rose by 54% by the
end of June 2017 from March 2016. As on 16 August 2017, the number of
Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts stands at 29.52 crore with
rural accounts comprising 60% of it. Thanks to demonetization led efforts, zero
balance accounts under PMJDY declined from 76.81 % in September 2014 to 21.41%
in August 2017.
(vii)
The impressive revenue collection under GST is also partially
attributable to demonetization drive. The total revenue of GST remitted
upto 29 August, 2017 is Rs.92, 283 Crores that too with only 64.42% of assesses
having completed the payments. The number of new taxpayers,
who have registered with the GSTN upto 29 August, 2017 is 18.83 lakhs
(12) According to data released on Thursday, August 31, 2017 Gross Domestic Product (GDP) grew 5.7% in the last quarter, undershooting
market expectations, compared to 6.1% in January-March period.
Some of the vital Concerns
and turbulent Issues that are yet in the process to be ascertained:
a. Now that the
whole process of exchange of Old Denominations is over, we have yet to
ascertain what's the actual amount of currency still lying idle as CASH in the
form of true Black Money but in new denominations with the hoarders, Real
Estate giants, money launderers, trading community and other drivers of the
parallel economy.
b. What's the
actual total no of fake currency Notes, if any that has been received by the
RBI from various sources during the #DemonitizationDrive.
Part II
Analysis of the stream of #BlackMoney, which has been channelized
back into the main stream:
The most important reason of
launching this drive of Demonetization in a potential booming economy was to
unearth Black Money that has daunted the very core of the economy and has
siphoned off the money from the economy to overseas institutions. How far the
present Government was successful in its maiden effort is under the cold wraps.
Let's now trace the movement of Black Money from the vaults of the owners of
Black Money to the Banks in different formats:
Of the total Rs.16 lac Crores
cash in circulation, 60% was part of the parallel economy. The whole rot of
Black Money ultimately got replaced in the same format with the new currency, with
the supervision of some influential politicians, Industrialists, and Traders
with the positive contribution of the army of a few corrupt Bank officials who
ditched the sincere efforts of the Government.
Further, a detailed
analysis of this up-current movement of #BlackMoney as per our guesstimate
would go like this:
(1)
At least 3% of the black
money came back into the system thru the channel of payments received by BSNL,
Telephone companies, Electricity and water bills, and House Tax payment
outstanding towards the Municipality, from the general public…!
Surprisingly, many of the Municipalities who
had not received any revenue towards House Tax for the past 15-20 years were
lucky to receive the complete backlog in one stroke. Good sign. Now those
subscribers are bound to continue the payment of House Tax in future as well.
(2)
Another 5% of the Black Money was coughed back thru the Petrol
Pumps....!
(3)
Another 5% was present in the form of small amounts below Rs. 1
Lac as CASH for personal expenses held by family members on individual
basis...! They too got the money exchanged in a lawful manner directly from the
Banking institutions.
(4)
At least 7% of the total amount was invested by some wealthy
individuals to purchase Gold etc. overnight.
(5)
Similarly people diverted 2% of Black money to purchase Rail Tickets,
Air Tickets, electronic items, textiles and other consumer products.
(6)
Possibilities are that around 0.5% of the idle money was
destroyed or is still lying with individuals hoping against Hope for the
revival of the same currency. High Hopes indeed....!
(7)
Hopefully 1.5% got distributed to low income group relatives,
friends or employees as gifts / loans / transfers to save their skins from the
authorities deposited in their bank accounts, an untold exercise of
distribution of wealth
(8)
Finally, the Traders all small & big, doyens of the
Industry, who were capable and had right links managed to continue to hide the
major balance chunk of Black Money may be around 35 %, made a fine deal with
the Bank Officials to exchange all their old Notes against new denomination
Notes for a standard commission of just 30%. So in a way it was also an
exercise of distribution of wealth of Black Money from the Vaults of the have's
to that of the pockets of the have not's.
Now the most important question that
arises in our mind is, if the total amount of fake currency notes that was received
and finally destroyed to the tune of 23 lac Crores, had instead been dumped by
our external enemies with the help of some insider cronies, then what would
have been the state of our economy in near future. This factor even accomplished
economists like Manmohan Singh and Raghuram Rajan could not visualize.
Just imagine that illegal counterfeit
notes to the tune of more than the actual amount of real money already in
circulation and possibilities of additional Rs.10-15 lac Crores that was ready to
be dumped by the ISI thru Hawala rackets in near future. This would have completely
damaged our economy beyond repair for a very long time.
As an annexure to the above mentioned
point, now there arise a few very valid questions:
(i)
Who was funding the printing of counterfeit notes that were
being added to the circulation?
(ii)
At what rate in exchange was the seller of these notes
exchanging them with original currency?
(iii)
Suppose if he/she had given ten counterfeit notes in exchange
for one note, then at those rate original notes worth at least 2 lac Crores
should have been smuggled out back to the manufacturers of counterfeit
currency.
(iv)
But if the value of non-returned currency was only ONE LAC Crores
as declared by RBI then it proves that they had sold at least 20 -25
counterfeit notes in exchange for one of the original denomination.
(v)
The amount of original notes that have been smuggled out of the
country to its sellers in Pakistan, Bangladesh, or Dubai will never ever come back to our system.
(vi)
That amount of notes
must have already been burnt by its possessors as it was of no value for them
either.
Well this was an undeclared cold war launched by the enemies of the
nation both within and without for the past two decades. Any kind of war cannot
be tackled by just sitting over the fence and watching the show. It has to be retaliated
head on by holding the horns tightly and throwing the bull out of the
boundaries so that it doesn’t explore to repeat the adventure again. Now any
war has its costs involved both in handling it passively or actively. Remaining
passive is too dangerous for the economy to sail through. Hence one has to
swallow the bitter pill to nip the bud of tumor from its roots and be active.
Looking to the factors above, some well-meaning economists are of
the view that just as we take the exercise of calculation of Population Census
or announce the panel of Pay-Commission for Government Employees every ten
years, similarly once the Whole amount of Black Money is flushed out,
thereafter the Government should launch a drive for Demonetization every 10/20
years to refresh the whole system in order to reinstate the ailing
economy...!!!
Now let us Wait and Watch......!!
Time will deliver...
Let us wait how the
Government will unveil the next steps with necessary precautions to finally
unearth the Black Money in real terms....!!!
INDER KRISHEN WALI
For more details please visit the following link :
http://pib.nic.in/newsite/printrelease.aspx?relid=170378
