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Demonetisation – The game of “Catch me if you can”

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J Thiyagarajanhttps://indiantides.wordpress.com/
I am an Information Technologist by profession and a freelance blog writer. Interested in topics India's national interest, science, nature, religion and everything else about the universe.
 

On December 30, 2016, when the window for depositing Demonetised currency notes closed, India somehow catapulted itself to the lowest rank in the world Corruption Perception Index from a rank of 76 in the previous year, thus getting better than the rest of the world. Yes, I am kidding you – what else can one say while looking at the data on deposits of cancelled notes due to Demonetisation as presented in RBI’s Annual report for 2016-17 ?

To understand this, one needs to look into the details on the old notes returned.

RBI allowed over the counter (OTC) exchange of old notes, to quickly make some cash available to the citizens for their immediate necessity. This was allowed only for 15 days for amounts ranging from Rs.4000-4500. Based on the feedback received, RBI quickly changed the rules and disallowed OTC exchange of old notes from 25th November 2016, leaving no option to citizens except to deposit their stash of old notes in to their accounts.

According to a RBI’s press release, only Rs.33,948 crores worth of old notes were exchanged OTC (2.2%). This works out to just around 8.0-8.5 crore exchanges OTC by around a similar number of citizens, assuming all exchanged the maximum amount allowed and none more than once. This makes it quite clear that if at all the investigating agencies wanted to identify the bulk of black money brought out by the citizens, they should look into the balance 97.8% of the old notes that was exchanged by depositing into the bank accounts.

This seems to have belied the expectation of the honourable Indian Prime Minister Shri.Narendra Modi who stated in his address on the night of 8th November 2016 “The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper” Clearly, return of 99% of the old notes was quite an anti-climax that gave the opposition enough boost to demand the PM’s acceptance of a failure of the demonetisation exercise.

 

To understand how this happened, let us look further into details that had emerged subsequently. While presenting the budget for the FY 2017-18, the union Finance Minister Shri.Arun Jaitley mentioned the following about the deposits of old notes.

  • Amounts between Rs.2 lakhs to 80 lakhs were deposited into 1.09 crore accounts, totalling Rs.548,270 crores. Amounts over Rs.80 lakhs were deposited into 148,000 accounts, totalling Rs.489,880 crores.
  • Thus, 67.2% of the total value of old notes in circulation was returned in terms of high value deposits that are likely to have been made by HNIs, business men and businesses into their savings or current accounts.
  • It is deducible that, the balance Rs.455,902 crores (29.8%) deposited into bank accounts should have been in amounts less than Rs.2 lakhs. This amounts to an average deposit of Rs.36,000 in old notes from each of the 25 crore household in India. That is a whopping amount !

If the citizens of India have taken the courage to deposit such a huge amount of old notes into their accounts it would mean one of these two possibilities:

  • An overwhelming majority of the population had no black money at all with them and held the confident to explain the source of the cash they deposited, when asked for, without having to fear for any consequence.
  • A sizable amount of the old notes deposited was indeed black money but the depositors should have either adopted methods that made them quite confident of not getting caught or simply were taking a chance, if the past is anything to go by.

No sane person on this earth would believe in the first possibility as India is known for its corruption among politicians, bureaucrats, business men, government staff and even government hospital staff. Definitely not in a country where just around 2 crore citizens and 10 lakh businesses paid any income tax at all in the recent past years and where a sizable number of businesses managed to keep themselves out of the tax net (which is just now being addressed through introduction of GST).

 

As per RBI’s Basic Statistical Returns of SBCs, Indian banks had over 5.7 crores current accounts and 135 crores savings bank accounts as on 31st March 2016. There has been no restriction at all as to how many bank accounts a person, household or business can have. If someone had a huge amount of cash in old notes out of undisclosed income, the deposit could have been split between multiple accounts belonging to his / her own family, business or others who colluded with them for a commission. The data released by the Ministry of Corporate Affairs (MCA) last week, confirms that this modus operandi has been used by several of the shell companies to launder their black money.

The PM said “I have full confidence that every citizen will stand up and participate in this ‘mahayagna’. My dear countrymen, after the festivity of Diwali, now join the nation and extend your hand in this Imandaari ka Utsav, this Pramanikta ka Parv, this celebration of integrity, this festival of credibility”. If lakhs of citizens have resorted to hideous means of laundering their ill-gotten money, aren’t they failing their duty to stand on the moral high ground? Aren’t they failing their Prime Minister’s expectation by undermining the call for celebration of integrity?

This sadly indicates that a sizable population has taken it for granted that it would be difficult for the investigating agencies to even pick the scent of such deposits from among crores of transactions, let alone punish them. They might have wrongly assumed that the government wouldn’t be serious about taking punitive action against lakhs of citizens for depositing black money, as those who run the government will have to return to them for re-election very soon.

  • But reality points to otherwise, considering these :
    In today’s world of automated banking with mechanisms to profile the account holders, is not an insurmountable task to mine out suspicious transactions out of a few million. After all, the Indians are proven IT experts with Aadhar being the crown jewel of all automations in India.
  • In the last 3 years, the government has demonstrated its resolve for action by reducing the leakage of subsidy, which is another form for corruption, by single-mindedly pushing direct benefit transfer.
  • 209,032 shell companies without any real business or revenue have been struck off in one go from the registrar of companies and over 300,000 directors of those companies have been named and blacklisted for not doing their duty as directors.
  • A report in August quoting IT department claims that cash deposits of Rs.2,89,000 crores post note ban by 9.72 lakh persons in 13.33 lakh accounts were under radar. Also the recent report from MCA indicates unearthing of the first set of actionable data by banks themselves.
  • When Aadhar linking of all bank accounts is completed by 2017 end as planned, it should make it very easy for the authorities to link all accounts held by any individual and identify all deposits made not only during the note ban period but also much earlier.

It is heartening to note that the investigating agencies are making a slow and steady progress leading to firm actions. The government should use this opportunity and utilize all the resources at its disposal to impartially hunt and punish all those who miscalculated that they were smarter and entitled to carry out their corrupt dealings forever. Every offender, irrespective of whether he/she is a politician, bureaucrat, business bigwig, NGO, public entity or private citizen, should be dealt with firmly as per law, possibly in some order of priority.

Simply put, for those who challenged “catch me if you can”, the government should demonstrate beyond doubt that “it can and it will”. There might not be another opportunity at all !

In embracing the demonetisation, the country has sacrificed dearly in terms of lost GDP growth, a huge operational expenditure, loss of jobs, personal inconveniences and even deaths. These costs can be justified if and only if a substantial gain is made in terms of rooting out black money and making the citizens realize that further generation of black money through corruption would be unprofitable and unsustainable.

Indications are, the ‘Mahayagna’ started by our Honourable PM will continue and the dishonest will have to pay the price. After all, the PM owes it to the majority of the Indians who are honest and support him in the Imandaari ka Utsav.

Lastly, as several pundits have written, the value of the cancelled notes returned does not at all determine the success or the failure of demonetisation but it has already achieved several demonstrable results, like increase in direct tax collection, increase in IT filings, reduction in cash to GDP ratio, etc. Tangible action against black money depositors will only enhance its effects manifold.

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J Thiyagarajanhttps://indiantides.wordpress.com/
I am an Information Technologist by profession and a freelance blog writer. Interested in topics India's national interest, science, nature, religion and everything else about the universe.

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