Tuesday, November 29, 2016

Who will benefits from demonetisation of high value indian currency

The political reaction after the announcements of demonetisation has triggered a debate that focus on black money & corruption in the country. Amid all the political expression, here is some important facts on benefits of demonetisation.

As we all know that black money & corruption is one of the biggest problem to our country. It has spoil politics, democracy, government & its institutions, judiciary, the media, and is fueling for criminal & terrorism. In recent years the black economy has significantly expanded and is larger than the real economies of many country like Argentina & Thailand. When you asked the Indian most of them want to get ride of the shameful legacy of corruption & black money in the country.

The Congress party has opposed the demonetisation move. The finance minister of UPA era has criticised the move calling it is a 'note-badli' not 'note bandi' and it would not have any gains!. Former Prime Minister Manmohan Singh said it is a "organised loot and legalised plunder," adding that it was a "monumental management failure."

What the congress leaders said in his word is that he & the government, which ruled the country on a chalta hai attitude that over 10-years had most of unprecedented expansion of black money with all the risks & dangers it poses. The former finance minister knows that demonetisation is a significant first step, but it has to be followed up with some more steps of better surveillance & tax compliance to ensure that the problem is addressed completely.

The people have noticed the difference between the inaction of the UPA government and the decisive efforts of the present government in dealing with the Black Money & corruption. It is the tendency of the leaders that when all else fails, they fire from the shoulder of others. So, P Chidambaram also recalled that how the former RBI Governor, Raghuram Rajan, was not in favour of demonetisation. The Black money and corruption is a big issue that linked to terrorism, national security, corporate and politcal leaders, etc. The Rajan was narrowly focusing only on issues of macroeconomics and monetary policy not on Black Money and corruption that has expanded in recent years.

Demonetisation is never an easy process as critics talk, especially when it comes to voiding 85% of circulated high currency value. The disruptions were expected, So why the prime minister had requested citizens to bear with the inconvenience for interest of the country. The secrecy requirements also needs advance preparations could not be done because it would not have secrecy.

There is an legitimate grounds for this debate on whether the PM Modi could have executed the machinery in better way and with more empathy. The disruptions is absolutely bad for those in the small & informal sector, the poor & those who live in underbanked regions. For decades, the governments, and the RBI Governors, did not made effort to addressing this issue. The informal sector and small business depends on cash availability that needs urgent attention from the government.

On the priority basis, the government could considered a host of plan, that includes :
- By permitting regular & receipted transactions in the services like health, schools, food, transport, etc, where paying peoples are identified. This can be allowed till December 25. This will help in reducing the pressure on the informal sector.

- To reduce the pressure on banks and improve liquidity the government departments and PSUs must give salaries in cash for the next few months to their employees .

- There must be clarification on the issue of taxation and penalties on deposits. Many peoples are in confusion that there is no case for penalties under Income Tax Act for disclosed income. An increase in litigation as a result of demonetisation would be decreased.

- To ensure that armed forces & paramilitary forces who are serving in different part of the country get special attention and dispensation.

The benami property and assets like bullion must be in the next steps to tackle the black economy. To prevent further accumulation of black money by incentivising compliance, the reduction in direct tax rates is a must.

While the main focus in on disruptions, the benefits of demonetisation & the clean-up of black money have not been thoroughly. The gains of demonetisation are also for cleaning up of dirty politics and the elections in the country. The demonetisation will also transform our economy into an efficient, transparent. This extra expenses of the government must be directed at investments, creating jobs and expanding welfare, spending for the poor & farmers.

The banks too will benefit from this huge amount of deposits and from the frequent transactions with the added indirect benefit from businesses restarting investment cycle. There are many other benefits that the government must start planning & realising for the citizens of the country.

The struggle against black money is a decisive, a serious kind of change. All though most of the Indians like this initiative. For the people of the country the government has to ensure a softer, more sensitive landing for the poor & middle-class.

- analysis by DirtyPolitics

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