Dinesh Kamath's Editorial 'Effects of demonetisation' that was published in Newsband

Effects of demonetisation

The RBI Annual Report disclosed the amount of demonetised currency that returned to the system as on June 30. It's now official — 99 per cent of the extinguished currency or ₹15.29 lakh crore out of ₹15.44 lakh crore has returned to the banking system.

The Economic Survey (Volume II) 2016-17 says “the growth of taxpayers post-demonetisation was significantly greater than in the previous year. The addition amounted to about 5.4 lakh taxpayers or 1 per cent of all individual taxpayers in just a few months. The addition to the reported taxable income (of these new payers) was about ₹10,600 crore”. the RBI points out “that currency demand appears to have attained a new normal (currently around 87 per cent of the pre-demonetisation peak)”. With GST, tax compliance can be expected to rise sharply,

The demonetisation pave the way for proper information of valuations in assessing the impact of money and its value. But some are of the opinion that actually, no Demonetization happened, it was "withdrawal from circulation" of Rs1000 and Rs500 notes. Black or white, all genuine currency notes were allowed to be deposited in banks. Need to declare source or accounting the deposits were all part of normal procedure. Media and analysts are messing up diverse issues. Economic Survey contributed to the chaotic confusion by telling stories about possible huge "gain" from Demonetization using fictitious figures not supported by data. In the process, RBI got a bad name.

NDA’s half-hearted attempt to corner black money, through its two amnesty schemes, got tepid response from the tax evaders. The amount of income declared under the first scheme and the second scheme were around Rs 65kcr and Rs 10kcr, respectively. According to experts, the aggregate amount declared under the two schemes is ‘tip of the iceberg’.

Multi-pronged action is necessary to tackle the vice of black money. As for generation of fresh black money, it depends on how easy not to pay income-tax and other taxes. Evasion of taxes is the principal reason, giving rise to the generation of black money.

According to some businessmen, black money is necessary to bribe various government officials, including law enforcement agencies and Purchase Managers of customers, if the product is in the buyers’ market (per contra, Sales Mangers, if the product is in the sellers’ market), and that a businessman worth his salt wouldn’t use ‘white money’ for these purposes; also for the reason that ‘bribe’ is not a tax-deductible expenditure. In other words, it is not possible to run business in India, profitably, without bribing officials and for ensuring protection from undesirable elements of our society, etc. India/Bharat is not at all ‘swatch’ in this regard.

The Centre should take care to ensure that the sudden rise in searches and seizures since demonetisation does not turn into a witch-hunt. It is said that prior to the search operations, the targeted tax evader would receive an anonymous telephone call, warning him of the impending raid and giving him ample time to shift the hidden wealth elsewhere, with the result that nothing material would be detected and seized during the search operation. The anonymous caller would collect his share later on, as mutually agreed.

Technology is available not only to central bankers but also the counterfeiters. We need to issue new series of notes much, much faster. Every five to seven years we should necessarily bring in new series of notes to be ahead of the counterfeiters. If so, can we expect frequent demonetization(s)?