Demonetization – Is it really about bringing black money out?

Demonetization – Is it really about bringing black money out?

by Rajaraman K  (RRK)

 

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Govt has asked every one holding Rs.500 and Rs.1000 notes to come to the bank and exchange it for new notes.

On the surface it looks like Govt is forcing people who have hidden black money to bring them out in open so they catch them and penalize them for tax evasion.

But if you read all the regulations that came along with this announcement, you will see the strategy of the Government is very different.

Why?

If it is only about black money, If someone bring 10 crore cash and declare the black money, why not give him his money back in new currency and send him home. (Of course deduct his taxes and penalty)

After all his money is now white after paying taxes, isn’t it? Why not release his cash back to him? This is not done.

Next, why all these restrictions about cash withdrawals  from ATM for every one? It doesn’t jell with black money control, right?

I feel this govt is trying to suck out the money supply and reduce currency circulation in the country.

This is the major objective. But without sucking out all black money, circulating currencies can’t be reduced. This is the game being played.

I guess to make this strategy appealing to all the sections of the society this “demonetization for black money control” as the reason being told. It is easy to get support from all people if black money as the reason told.

There are enough clues in the media that it is very much about reduction of currency circulation, even though not many experts spoke about this strategy of the government policy explicitly.

You will recognize what I am talking about quickly.

Today (10th Nov 2016) Time of India Chennai edition came out with 3 front pages.

Freecharge, PayTM and Ola Money – Each of them took two full front pages, explaining the ease of e-payments. Do you see the connection?

Today you might have noticed all bank stocks were on rally. Stock market understood plenty of money which is coming into the bank in currency form is not going to go out in currency form. And a lot of them is going to be locked up in the bank. This increases CASA for the banks, which is highly profitable.

So, you can see this is not about black money control any longer.

There are several monitory, economic benefits in reducing currency circulation and moving to e-payments.

Velocity of the money will be higher. Money can move from one hand to another at a faster rate.

In paper format, it will be very slow. Paper format is also prone to tax evasion. When done electronically, all trades and business leave audit trails.

As elimination of currency from the circulation is being the real reason, govt is forcing us to withdraw only small amount in a day and get used to do more e-payments.

We need to understand this real objective.

It is good for the country in the long run. We must support this objective wholeheartedly but this is not going to happen without any pain.

Pain will be only short term. Benefits are long term.

This is radical measure and unprecedented in Indian history, may be never done anytime in any part of the world. Developed nations adopted electronic payments over a period of time and it happened naturally, not with any force.

Recently I read an article that In Sweden, even banks don’t accept cash any more(link: https://goo.gl/1cFvGO).

Modi is in hurry and wants to put India in high speed route to prosperity.

He planned it very well and executing it to the plan. First Jan Dhan Yojana helped crores of people to open bank accounts, next Aadhar and linked both to mobile phone. Next Black money declaration scheme, then immediately this.

So instead of thinking you got nothing to do with this demonetization drive and believe it is affecting only those with black money, recognize this is game changer and it very much affect you and everyone in the country permanently.

Reduction of cash in our economy is not going to be easy. It will be with lot of pain. But we will succeed.

What it means to our daily life? How can we live our life with less cash transactions?

The solution can be very unique and personal.

Look at your own cash network. Look at who is paying you by cash and whom you are paying by cash.

Study and analyse it. Try to convert one by one each of them to e-payments or bank check payments.

It could be your Driver, maid, cook, neighborhood vegetable shop, grocery shop, doctor, dentist, tailor and so on.

Most of them might have bank accounts already due to JDY scheme. For those who don’t have one, please help to open bank accounts and get ATM cards for them. You also have responsibility to explain to them that this is being done in the larger interest of the nation.

This is not going to be easy. But recognizing that it is not going to be easy solves half the problem.

PS: By the way, this also helps in controlling black money. Because less cash in the market, lesser cash transaction, Lesser Tax evasion, Lesser corruption.

Jai Hind!

 

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