evaluation of demonetisation (8 nov 2016) in india to curb corruption and terrorism
TRANSCRIPT
Evaluation of Demonetisation (8 Nov 2016) in India
to Curb Corruption and Terrorism
Santhosh ThannikatAssistant Professor Rajagiri School of CommerceRCSS, Kalamassery
Meaning•Demonetization is the act of stripping a currency unit of its status as legal tender.
•Demonetization is necessary whenever there is a change of national currency.
• The old unit of currency must be retired and replaced with a new currency unit.
History• India had previously implemented demonetization. In January 1946, banknotes of Rs. 1,000 and Rs. 10,000 rupees were withdrawn and new notes of Rs. 1,000, Rs. 5,000 and Rs. 10,000 rupees were introduced in 1954. • The Janata Party coalition government had again demonetized banknotes of Rs. 1,000, Rs.5,000 and Rs. 10,000 rupees on 16 January 1978 as a means to curb counterfeit money and black money.
Demonetization of Indian Currency- Nov 2016
Percentage share of currencies.
Volume and amount
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Collection of Old Currencies • The total amount of high denomination currency circulating in the
system on November 8 was Rs 15.44 lakh crore • Rs 8.58 lakh crore in Rs 500 notes and Rs 6.86 lakh crore in Rs 1,000• According to estimates, banks have collected cash deposits of over Rs
14.9 lakh crore • This means that the money deposited in bank accounts require thorough
scrutiny by the CBDT to assess the extend in which black money had been deposited in multiple accounts.
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•Demonetization was also taken up by many countries such as Ghana, Nigeria, North Korea, European Union, Pakistan, Zimbabwe, Myanmar, Australia and Switzerland.
Some of them were successful while some of them affected the economy in a bad way…….
Impact of Demonetization• The effect of this policy is not going to be uniform across the economy. Sectors that have a larger cash component in their transactions will be hit harder, such as real estate, movie production, campaign finance, etc.• This will then be followed by a correction in these markets. Whether these corrections are deflationary (reducing prices) or contractionary (reduce business) is something to watch closely.
Advantages • Eradication of Black Money and corruption• Lack of funding will lead to reduced arms smuggling and terrorist
activities• To replace cash transactions to card and online payments
transaction will lead to increased share of formal economy• As for exchanging old notes valid ID of the person is needed which
will help to track down circulation of money in the economy• Real estate sector which is a breeding space for corruption will now
have transparency. This will lead to lower prices of real estate.• As the transparency increases in the economy, it will attract more
domestic and foreign investors.
Huge amount of money have been recovered by I.T department as attempt was made to make them white money.
Any impact on the black economy?• According to National Institute of Public Finance and Policy (NIPFP), black
income amounts to nearly 40% of the country’s GDP.• If Rs 2 Lakh Crore is revealed as black money it will account for 1.75% of
GDP. Provided it is effectively channelised through Benami Transactions Act (1 Nov 2016) and PM Garib Kalyan Yojana • Black money hoarders will definitely lose out, eventually boosting the formal
economy in the long run. • Despite having many positives such as rising tax to GDP, higher GDP
growth, lower inflation, higher financial savings, this demonetization move may not curb the root cause of black money.• This initiative addresses the ‘stock’ of black money but not necessarily the
“flow or fresh” creation of black money unless some mechanism is built to track the movement of the new high-value currency notes.
Reasons for corruption in India •High tax rates• Excessive and complecated Regulations• Corrupt Bureaucrats •High Capital Gain Tax• Lack of transparency• Licensing system
Evasion AttemptsGold Purchases:• In Gujarat, Delhi and many other major cities, sales of
gold increased on 9 November, with an increased 20 to 30% premium surging the price as much as 45,000 (US$670) from the ruling price of 31,900 (US$470) per 10 grams (0.35 oz).
Multiple bank Transactions• restrictions imposed on exchange transactions • multiple transactions at different bank branches.
Getting rid of old currenciesDonations:• Authorities of Jalakanteswarar temple
at Vellore discovered cash worth 4.4 million (US$65,000) from the temple Hundi.
Advance Salaries• As the employer is allowed to pay advance salary of 3
to 8 months, many employers have paid advance salaries upto Rs 2.5 lakhs.
Burning / dumping of currencies • Many cases about Rs 500 and Rs. 1000 notes being
burning / dumped into the garbage have been reported.
Other methods • Generating bogus sales invoices: Jewellers under
scan for such activities• Routing it as donations to an NGO, then getting it back as white money• The Jan Dhan route almost the entire Rs 29,000 crore
in increased deposits in Jan Dhan accounts – meant for the very poor – till December 2, 2016, have gone into just 3 crore bank accounts out of the total of 25 crore Jan Dhan accounts. The tax department has no infrastructure or resource to investigate three crore Jan Dhan accounts where all the fresh deposits have gone.
Money laundering routes•Deposit your ill-gotten wealth in a temple hundi, get it back as clean cash in new denominations:• Take the North East / Sikkim route: •Opening bogus new accounts in collusion with bank managers – Axis Bank cases
Pradhan Mantri Garib Kalyan Yojana• Commenced on December 17, 2016, and is open for
declarations up to March 31, 2017• Tax including penalty is totalling nearly 50 per cent of
the income to be declared under the scheme. • In addition, an amount equal to 25 per cent of the
declaration will have to be deposited in the scheme for four years without any interest.
• The scheme related details can be made available only after 31 March
IS DEMONETIZATION WORTH IT?• The Black Money hoarders from hereon will start
converting their Indian Currency into USD’s and Euro’s (via Hawala) thereby, adversely causing fiscal implications as no direct or in-direct tax will be levied on this transaction.
Conclusion• An exhaustive and painful step to curb black money (corruption)
which is fuelling terrorist and other anti-national activities. • Forcing people to move on to digital money transactions through
banks, in-turn getting more transactions into formal economy • Strong political will to make the country corruption free through
various steps taken. • Complete benefits can be accrued in the long run along with
additional law makings, control through CBDT and other agencies.
