No pain, no gain

It's the subsequent administrative bungling in terms of confusion about the availability of new currencies, adequate and timely supplies to banks and ever-changing instructions on their distribution that has confused the Indian voter - not all of whom are bank customers, either.

A commoner asks a man standing in a queue how far is the nearest bank. The man says, “a bit too far.” The other persists, “Shall I take a bus or an auto then?” And the wearied man says, “Do neither. Join the queue”.

Such jokes have abounded in the social media since Prime Minister Modi’s  assault on black money.  Let’s face it. Modi’s surprise announcement, invalidating Rs 500 and Rs 1,000 notes from the midnight of November 8, has sent the nation into a tizzy, led to a run on banks and hit the poor, the daily wagers and the middle class hard, at least in the near term.

The entire opposition, while welcoming the intention to deal a blow to black money, says the Government should have given time to the people to switch over to what may be a baby step towards a cashless economy. Supporters of Modi too say he had obviously not done enough homework before taking such a drastic decision.

Voted to power on the plank of clean governance, Mr Modi could not fulfil his promise to bring back black money stashed away abroad because of legal tangles. The Government tested the waters by sending feelers that it planned to limit cash transactions. When it did not go well with the people, it quietly dropped the idea.

Modi facilitated one crore people to open bank accounts without much hassles. Given the fact that 86 per cent of the people have no access to banks and ours is essentially a cash-driven economy, it may be a drop in the ocean. And yet it was only the first step.

In one last attempt, the government offered the black money holders an amnesty scheme till September 30 to give them time to come clean by paying 45 per cent tax and getting away without any further questions. It yielded some Rs 62,500 crore, according to Finance Minister Arun Jaitley.

Then came what BJP calls the ‘surgical strike’ and Congress leader and Kapil Sibal criticises as carpet bombing. But then, secrecy is of the essence for a surgical strike to succeed. Any preparatory move like infusing enough funds into the ATMs and recalibrating the machines before the strike would have given the game away and allowed the black money holders to laugh all the way to the bank.

That was why Modi did not even trust his own Cabinet colleagues. After taking this decision after a cabinet meeting, he told all the ministers to stay on and switch off their cell phones until he finished his address to the nation.

“You are the first to know”, Mr Modi told the people. That was why banks were shut the next day to give them time to prepare themselves for the change.

Mr Modi gave time to the people to change their old notes for new with the banks till December 30. This was a 50-day window of opportunity to the honest tax payers to minimise their hardship, but those who have tonnes of black money can no way exchange their hoard within the short time.

Obviously, neither Modi nor Jaitley expected such a huge backlash with serpentine queues seen outside banks all over the country and existing all day long filled with anxious people wanting to change their demonetised notes into smaller denomination notes.

Honest tax payers who have nothing to hide will have nothing to fear as they can deposit any amount in their account so long as it is proportionate to their income.

No doubt, honest tax payers have been put to a great of inconvenience as the ATMs are yet geared to dispense new 500 -rupee and 1,000-rupee. This is only a transition period, painful though for the less privileged. A series of steps taken by the government like raising the daily and weekly cash withdrawal limits from ATMs and asking banks to get PAN numbers of those either exchanging the old notes or depositing them in their accounts if the amount involved was high was obviously an afterthought.

Modi also announced on the first day itself that the government had accepted the RBI recommendation to introduce Rs 2,000 notes to absorb the old 500-rupee. Critics gloss over the fact that in one stroke the government has flushed out from the system old 500-rupee and 1,000 rupee notes, dealing a deadly blow to black money holders. If that was not the case, why were wads of old notes thrown into drains and were seen floating in rivers?

However, sceptics are not convinced. By introducing Rs 2,000 notes you are only helping the black money holders to hoard more money with fewer notes, they say. But then, it is only an immediate measure and the RBI can always limit the printing of Rs 2,000 notes later once the old notes are flushed out of the system.  

Another criticism is that those standing in the queue in banks are not the suited and booted but the ordinary people. They forget that the rich can make electronic transfer of cash. This is precisely what the government wants. Any such online transactions can be tracked by the tax authorities.

The cash-rich black money holders have started using benamis to deposit upto Rs 49,000 as no PAN number is needed. As a result there has been a surge in the cash in accounts of the poor from the minimum balance of Rs 10 to thousands overnight.  

As the rich have started using the poor to exchange old Rs 500 and Rs 1,000 notes, the RBI has said banks should put indelible ink on the index fingers of such customers so that they do not make multiple withdrawals. The banks have also limited exchange of old notes to Rs 2,000 now.

It may have only a limited impact. But then how much of such unaccounted money can the tax dodger convert into white in such a short span. Remember that in a nation of 1.25 billion people only three per cent are in the tax bracket.

There are yet no accurate figures on how much of the old notes have come into the banking system.

According to the latest estimates, at the time of demonetisation, Rs 14 lakh crore of 500 and 1,000-rupee notes were in circulation. Since then Rs 5 lakh crore worth of old notes have been exchanged, which means another Rs 9 lakh crore of old notes is still in circulation. Only after the Dec 30 deadline expires will we know how much of this will come back to the banking system .The rest will obviously be black money flushed out of the system.

Maybe, there has also been a surge in demand for gold. Even so, the jewelers have to come to the banking system with the crores upon crores of worthless Rs 500 rupee and '1,000 and pay tax on it before the deadline expires. It is not as though Modi does not know that tax evaders do not hoard unaccounted cash, but keep it in circulation, as the Marxist member of Parliament Sitarama Yechuri has said.  Yes, they use it to fund all illegal activities. Besides, they invest in gold. land and real estate, mostly in benami..

Modi himself has made a specific mention that in the real estate sector, 60 per cent of the money is paid in black. Any dent on this will check artificially inflated real estate boom, which in the long term would mean affordable homes for the middle class and the poor.  As a follow-up, Modi has promised a crackdown on benami transactions, be they in gold, real estate or land.  

The opposition says Modi has done it with an eye on upcoming elections in UP, Punjab and Gujarat. Even if Modi had an immediate political motive, it only shows that it is the corrupt political class has been using black money to bank roll elections.

Marxist MP Yechuri calls naive Modi’s assumption that the move will curb fake notes used to fund terror groups. No doubt the UN charter on terror funding focusses on electronic transfer of funds. But then at the global level, that is the norm and not hawala and cash transfer peculiar to this region.

What Modi had in mind was not global terrorist outfits like ISIS but Pakistan-sponsored groups like Jesh-e-Mohammed and Lashkar-e-Taiba. Even if his move has a limited impact on such groups, it should be welcomed.   

The general criticism is that demonetisation will not make the black money go away as the experience of 1978 shows. A beginning has to be made and Modi has put fear of God in the minds of the corrupt and the tax evaders.

It is very well to say that the path to hell is paved with good intentions. Let's wait for the impact of this move which will be known only next year. The important point is that Modi has shown political will regardless of the cost. If he has bungled, he is ready to pay the price.  Let's laud him for that courage of conviction at least.

The Demonetisation drive has taken the country by storm, with opinions on both the pros and cons of the move, considered a surgical strike on black money.

Pros:

Fake currency networks are stunned by this sudden move and as a result, bundles of fake currencies are now useless pieces of paper.

People stashing illegally earned money are now in a fix, unable to exchange most of the currencies.

Naxals, whose cash stash is buried in the forests are now obsolete, as they cannot exchange the denominations without getting caught.

The instances in stone pelting in Kashmir has vastly reduced, as per Defence minister Manohar Parrikar, who said the rates for stone pelting was Rs 500 and Rs 1,000 for other activities.

Smuggling of gold and arms have come down.

Cons:

The move has shattered the rural economy, with people of lower and middle strata affected.

The common man is made to stand in serpentine queues for long hours, just to exchange a meager amount.

All emergency services are affected due to lack of change for Rs 2,000 notes issued.

Trucking networks, majorly transporting essentials for public, is also hit severly.