Demonetisation: Willful, Painful and a Futile Disruption

Uma Shanker Singh Delhi 


DEFINITION OF BLACK MONEY

There is no uniform definition of black money in the literature or economic theory. In fact, several terms with similar connotations have been in vogue, including ‘unaccounted income’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’, black economy’, parallel economy ’, ‘ shadow economy’, and underground’ or ‘unofficial’ economy. All these terms usually refer to any income on which the taxes imposed by government or public authorities have not been paid. Such wealth may consist of income generated from legitimate activities or activities which are illegitimate per se, like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism, and corruption. For the purpose of this document, ‘black money’ can be defined as assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession. This definition of black money is in consonance with the definition used by the 
National Institute of Public Finance and Policy (NIPFP). In its 1985 report on Aspects of Black Economy, the NIPFP defined black income’ as ‘the aggregates of incomes which are taxable but not reported to the tax authorities’. Thus, in addition to wealth earned through illegal means, the term black money would also include legal income that is concealed from public authorities:
1. To evade payment of taxes (income tax, excise duty, sales tax, stamp duty, etc);
2. To evade payment of other statutory contributions;
3. To evade compliance with the provisions of industrial laws such as the Industrial Dispute Act
1947, Minimum Wages Act 1948, Payment of Bonus Act 1936, Factories Act 1948, and Contract Labor (Regulation and Abolition) Act 1970; and / or
4. To evade compliance with other laws and administrative  procedures.

FACTORS LEADING TO GENERATION OF BLACK MONEY

Black money arising from illegal activities such as crime and corruption has an underlying antisocial element. The ‘criminal’ component of black money may include proceeds from a range of activities including racketeering, trafficking in counterfeit and contraband goods, smuggling, production and trade of narcotics, forgery, illegal mining, illegal felling of forests, illicit liquor trade, robbery, kidnapping, human trafficking, sexual exploitation and prostitution, cheating and financial fraud, embezzlement, drug money, bank frauds, and illegal trade in arms. Some of these offences are included in the schedule of the Prevention of Money Laundering Act 2002. The ‘corrupt’ component of such money could stem from bribery and theft by those holding public office – such as by grant of business, leakages from government social spending schemes, speed money to circumvent or fast-track procedures, black marketing of price-controlled services, and altering land use regularizing unauthorized construction. All these activities are illegal per se and a result of human greed combined with declining societal values and inability of the state to prevent them. Factors leading to their generation are both social and administrative. Acts is the responsibility of both state and central governments. Significant amount of black money, however, is generated through legally permissible economic activities, which are not accounted for and disclosed or reported to the public authorities as per the law or regulations, thereby converting such income into black money.

 

SURGICAL STRIKES ON INDIAN CURRENCIES OF HIGHER DENOMINATION

On 8.11.2016 our prime minister announced in the evening that currencies of higher denominations of Rs 500 and 1000 ceased to be legal tender and suddenly around 85% of the total currencies became illegal and was to be deposited to the bank by 31st December 2016 or else those currencies become simply become a piece of paper. The stated objectives of the demonetization were as follows

(1)    To tackle the counterfeit money being in circulation

(2)    To curb the terror funding

(3)    To nullify the black money hoarded in cash

 

DEFINITION OF DEMONETISATION

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 OF DEMONETISATION IN INDIA

The British Government undertook demonetization for the first time on 12th January, 1946 and demonetized currencies of higher denomination in one go. The back ground was world war-2 and the reason was again the black money hoarded by the business men in India. The world war -2 was over and Indian business men were supposed to have made huge fortune by supplying British army and British government the stuff they needed during those difficult days as there was nothing wrong in it but the supply was at  very exorbitant prices and taxes were not paid in its totality. The tallest leaders of that era also protested the move as people are doing today. Dr. Rajendra Prasad who could become the first president of India denounced the move and said, ‘’ while we, congressmen, have no sympathy with profiteers and dealers in black market; it is not right to penalize honest people who in good faith have their savings in notes of demonetized value. A large number of people belonging to middle class and lower middle class will be hard it.’ ’Janta Party came to power in 1977 with Jansangh as a major constituent and the black money again surfaced as one of the issues in the Indian politics. Morarji Desai was made to sit at the helm of affairs as prime minister in 1977, a man known for his fixed ideas and stoutly stubbornness  in character, decided to demonetize the currencies of higher denominations namely, Rs 500, 1000 and 10000 on 16th January 1978.The main objectives of this demonetization were primarily to eradicate black money, to contain profiteers and counterfeit money etc, as the same objective as stated in Modi’s declaration on 8th November, supposedly a war against black money in prime minister’s  belief and in his terminology. The next day was declared as a holiday in order to enable Indian Banks enough time to prepare for the chaos which was to follow as this happened with the Modi’s announcement on 8th November. The next day when the bank opened there were long queues waiting for the bank personnel and a chaos to follow, special counters were installed to clear the confusion but it did not clear the air. HM Patel, the then finance minister was not very sure about the objectives and the targets to be achieved  of his action as he said in one of the media interactions that ‘’ you will see me smiling whatever the results are’’ The finance minister was vague but the then  Governor, RBI was not. He wrote in his memoirs titled ‘’ Glimpses of Indian Economic Policies’’ he had pointed out to his finance minister that ‘’ such an exercise seldom produces striking results’’ This clearly reflects that there was a disagreement on the issue of demonetization between the two giants of economics and ultimately Governor, RBI was proved right in course of economic history as neither demonetization neither curbed black money nor it contained counterfeit money in our country.

 

HOW MUCH CURRENCIES WE HAD IN CIRCULATION
This is very important to understand the role of currencies of higher and lower denominations in the frame of stated objectives of the government. The central government’s sudden decision has taken a heavy toll on the citizens of this country, according to one survey three persons died on an average every day therefore; it becomes extremely important to decode the internal dynamics of these currencies. The denomination wise situation of currencies is as follows

 

TABLE-1: CURRENCY IN CIRCULATION AS OF MARCH 2016

 

              DENOMINATION

    AMOUNT (Rs in Cr)

Rs 1000

632586

Rs 500

785375

Rs 100

157783

Rs 50

19450

Rs 20

9847

Rs 10

32015

Rs 5

3680

Rs 2

853

Rs 10 coin

3703

Rs 5 coin

7045

Rs 2 coin

5926

Rs 1 coin

4178

50 paise

309

25 paise

700

TOTAL IN CIRCULATION- 1,663,432 Lakh crore

Rs 1000 & 500 in circulation- 1,417,943 Lakh crore

 

Around 100 lakh crore is stated to be in the bank and only 15% of it in the circulation. The government of India’s one decision has taken away about 85% of the total currencies in one stroke and that too in the name of eliminating black money from the Indian market. Is this possible in the present domestic condition? Probably not and we will discuss it thread bare in the ensuing paragraph. We have to learn a lot from the past mistakes but it seems we have not learnt anything and the entire surgical strike looks to be optics to please the domestic constituency. Sudden disappearance of 85% of the currencies from the market has caused immense and unbearable problems and pain for the masses.

IS DEMONETIZATION A TOOL TO CURB COUNTERFEIT MONEY

There is no source of information which shows how much money has been pumped into terrorist activities from across the border. Some agency claims it to be around 16500 crore whereas some other agencies say it in lakhs of crore but the only credible report is from Indian Statistical Institute, Kolkata which says this figure to be around Rs. 400 cr. worth of fake currencies at any given point of time in circulation in the economy and this constitutes 0.025% of the total budgetary outlay of 19.7 lakhs crore announced this fiscal year. Now the question arises as to why the government has undertaken such a gigantic work which has decimated the lives of many of our innocent citizens at the altar of political move to be able to prove more nationalist than other party leaders. As on today more than 112 people have died in queue in front of different banks. The total expenditure coming out to be around Rs 20000 crore in order to print new notes and its management to be able to make them reach to their destination but the total expenditure coming in the entire demonetization process in 50 days is going to be huge and according to one estimate it is around one lakh twenty thousand cr. Why this huge sum has been wasted just to appease the home constituency of our prime minister? We could have tackled this fake note Cash Courier through proper police intelligence and checking currency smuggling with the help of proper technologies available with the government. The surprise of the surprises is the deposit statistics of the banks as released by the RBI till 30.12 2016. The quantum of the fake note has been found to be 9.6 cr only which is supposed to be in circulation and helping so called terror activities. As far as the terrorist activities are concerned then it has been found that there has been a spurt in terrorist attacks after Uri attack by Pakistani sponsored terrorists on 18th September 2016 and followed by surgical strike by Indian army after 11 days. 17 Indian soldiers were killed of which two were beheaded and more than 25 civilians killed as on today. Had this been only on account of counterfeit money the number of terrorist attacks would have substantially gone down therefore, there is an urgent need to engage all stakeholders in the Kashmir issue. In Jammu and Kashmir the ground situation is much worse than the last year. The following figures show the deaths until 5th of December 2016.

TABLE 2: NUMBERS OF CASUALTIES IN J&K

 

 

2015

2016

MILITANTS

107

146

SECURITY FORCES

39

81

CIVILIANS

22

17

Source: MoHA

 

The figure speaks volume about the inadequacies and inconsistency in the Kashmir policy. The issues which worry us most are the death of security forces personnel as this has doubled in one year. The causality security force personnel were 39 in 2015 whereas this touched 81 in 2016 .The rise in the number of militant’s death is not that alarming, it was 107 in 2015 whereas increased marginally to 146 in 2016. This also shows that they were better prepared 

BLACK MONEY HOARDING

The total currency of higher denomination which was declared illegal tender on 8.11.2016 was around 15 lakh crore which constituted 85% of the total currencies in circulation. The CEO Niti Ayog and Revenue Secretary Government of India claimed that by the end of December all the currencies of Rs 500 and 1000 will come back to the Banking system. As on yesterday i.e. 30.12.2016 more than 14lakh crore (14.55 Cr according to some sources) has already been deposited in different banks in India, this constitutes about 97% of total currencies declared illegal tender on 8.11.2016.  Now the question is where is the black money? If all the money which was declared illegal tender has come to banking system there is no question of this being black money. Why this futile exercise? Why so much of pain to common people? The government will have no answer for this.

 

HOW LONG THIS CASH CRUNCH?

There were 1716.5 crore pieces of Rs. 500 denomination and 685.8 crore pieces of Rs 1000 denomination totaling 2402.3 pieces of notes of higher denomination in the total 85% of currencies which was  declared illegal tender. The printing capacity of the government is 200 crore per day, that means the total replacement will take around eleven months. Therefore, we are passing through this ordeal for no fault of ours and just for the whims of one person and incidentally he is our prime minister. This entire exercise was futile. Modi came to power in 2014 promising to boost growth, create jobs for India’s youthful population, and encourage investment. His poorly conceived demonetization has made a mockery of these objectives, while bruising his reputation as an efficient and competent manager. How long it will take for India to recover is anyone’s guess. 

A FUTILE EXERCISE 

The man behind the entire concept is stated to be Mr. Arun Bokil of ARTHKRANTI PRATISHTHAN situated in PAUD ROAD OF WEST PUNE. This institution works as NGO and works in the socio economic areas of the society. Arun Bokil met Narendra Modi in july 2013 for about more than an hour and reiterated what he thought prudent to eliminate black money from the system. On having interviewed after 8.11.2016 he said very candidly that Prime Minister did not do exactly what was advised to him and what he did was absolutely opposite. Mr. Bokil had suggested him to implement Banking Transaction Tax (BTT). Bokil seems to be hugely impressed with ISLAMIK BANKING as written in sharia. The islamik banking system works on NON- INTEREST concept. The BTT concept works on the tax on the transactions done by a person in his account. He was of the view that tax on banking transaction will give us a huge amount of tax and took an example for the year 2015-16. The total tax revenue collected by Government of India during 2015-16 was Rs 21 lakh cr from all the sources. The total transaction done in the same year was Rs 12000000 crore in one month and if 2% of tax is levied on this transaction and multiplied by 12 months then the yearly tax revenue will be astronomical and reaching somewhere more than trillions as tax revenue in one year. This taxation system has to be progressive. This is one of the hypotheses forwarded by Bokil which needs to stand the test of time and intensive national debate before being implemented in the country. He had suggested this tax mechanism to Modi to be implemented in the country. 
 

WHY DEMONETISATION WILL FAIL IN ITS OBJECTIVES 

Now some time has passed and it is a right time to study and look into different parameters to see  that how demonetization is not on the sound footings of economics and in all probability  going to fail as it had failed in past. Possibly India is one of the few countries besides Russia, Syria and Zimbabwe to have pursued this path to fight black money. Traditionally India is a cash economy and from time immemorial as people in this country traded in cash or on barter system. If we compare cash to GDP ratio of this country with some of the developed economy then it is on the higher side but there are many other Countries where people like to spend in cash therefore, this is acceptable in the Indian psyche and convenient in practice also. 

                                                                      Table showing CASH-GDP RATIO 

COUNTRY

CASH TO GDP RATIO IN PERCENTAGE

USA

7.5

GERMANY

8

CHINA

14.6

RUSSIA

9

BRAZIL

3

SOUTH AFRICA

2.5

INDIA

12

JAPAN

18.1

(Cost of cash Report2015). 

INDIA USES HIGH VOLUME OF CASH IN CONSUMER TRANSACTION –

India is not the only country where high volume percentages of cash are being used in consumer transactions, Indonesia is yet another country where 100% cash is transacted in consumer items. Some of the most developed countries like USA, JAPAN, UK spend 55%, 86% and 48% cash in consumer items respectively. A study was carried out in collaboration with respective governments, MasterCard and world bank in order to find out Volume of cash in consumer transaction and it has been found that this index figure is not only high in India but other countries also prefer cash. 

Table showing the volume of consumer transaction in cash

NAME OF COUNTRY

VOLUME OF CASH IN%

INDONESIA

100

INDIA

98

MEXICO

96

SOUTH AFRICA

94

CHINA

90

JAPAN

86

BRAZIL

85

AUSTRALIA

65

USA

55

UK

48

 There is no relationship of cash flow with corruption. The country like Japan has bigger cash to GDP ratio compared to Brazil but Japan is honest country. Cash economy has never been a marker for a country being corrupt. KENYA is the finest example of having used plastic money and being honest. About 75% people in Kenya use mobile for either making payments or money transfer but yet Kenya is one of the most corrupt nations ranking 139 out of 169 countries. In 2016 the opening ceremony of Rio Olympic was an example to be cited as a perfect case of corruption when all the players stood with mismatched clothes as officials had allegedly sold their NIKE kits to others and NIKE had lodged an official complaint to the Government about it.

 

SHADOW ECONOMY IS NOT AN ALLIEN TO THIS WORLD

Shadow economy is not uncommon in the world and there is no country in the world where shadow economy is not in vogue, not even the developed countries. There are some examples as an eye opener where shadow economy is already working as a challenge to those countries which we call or perceive as role model or honest countries. The World Bank has published a report on shadow economy worldwide and if we compare some of the developed countries with India then the result is self revealing 

(1)    USA – the shadow economy is 8.6% of GDP  (1600 billion USD)

(2)    China- the shadow economy is 12.7%of GDP (1400 billion USD)

(3)    Japan- the shadow economy is 11%of GDP    (480 billion USD)

(4)    India- the shadow economy   is 22.2% of GDP (500 billion USD) 

This is not a question of black money but a political agenda of our Prime Minister of India. He is under                tremendous pressure to show the world and his home constituencies in particular that he has struck on corruption with the contempt it deserves and nobody has done in the past. The cashless journey does not begin in one day and be completed in one or two years. If any political activist is observing his pattern after 8.11.2016 it may not take a long time to understand that he is restless from within and want to cash in its popularity immediately as he knows it well that as the days wear into months the restive population will go against him and his party in the coming assembly election in five states. Some of the cash less countries like Sweden started its effort towards this direction way back in 1960 and conquered this problem recently.

INFRASRUCTURAL PROBLEMS IN INDIA

According to Bank for International Settlement Report 2015(BIS) currencies India is in the middle of all the developed nations. The figures show that all the

                                                   Table showing percentage of cash in GDP

COUNTRY

%age OF CASE IN GDP

SWEDEN

2.12

UK

3.4

CANADA

3.8

BRAZIL

4.8

JAPAN

20.O4

HONG KONG

15.67

RUSSIA

12.39

SWITZERLAND

1O.99

EURO-AREA

10.33

USA

7.74

INDIA

11.4

 

Developed economies in the world prefer cash and truly so because cash has many advantages over plastic money. The cashless journey is a long journey and this cannot happen either in a year or two nor it is desirable. India is not yet ready otherwise to be fully ready to become cashless or even partially. The total numbers of Banks in India are 132834 of which 38% are in rural areas and 45% in urban and semi urban areas whereas 16.5% of the banks fall in metropolitan cities. The main difficulty is not the inadequacy of the banks only but their locations also. Around 27% of the villages have banks within a periphery of 5 km. There are 2.5 lakhs ATMs in the country of which only 35% are in the working condition therefore, there is a complete structure failure in the banking land escape in the country. The other disabling factor in ATM establishment is its distribution across the country; mostly ATMs are confined to metropolitan and urban locations and absolutely conspicuous by their absence in rural areas. The ATMs are in the short supply also, if compared to BRICS countries and with some other countries then India ranks at the bottom.

 

                                            TABLE SHOWING NUMBER OF ATMs/100000 PERSONS

 

NAME OF THE COUNTRY

NUMBER OF ATMs PER 100000 ADULTS

CANADA

222.27

RUSSIA

184.7

PORTUGAL

177.69

AUSTRALIA

160.75

UNITED KINGDOM

129.76

BRAZIL

129.25

SOUTH AFRICA

66.2

CHINA

55.03

INDIA

18.07

SOURCE-GOVERNMENT OF INDIA, WORLD BANK, AND MASTERCARD 

Therefore, it is beyond any comprehension that without taking our spending habit, our culture , our complete preparedness and adequate expenditure in banking and related infrastructure it is a futile exercise to undertake demonetization. 

DEMONETIZATION IS HITTING POOR HARD

Let us understand the country and its market. The strength of India comes from the small and medium enterprises (SMEs) and they contribute more than 40% in India’s GDP. A RBI study (2016) shows that there total 15.64 lakh Micro, Small and Medium Enterprises Units(MSMEU) are operational in in India  of which only 4% are registered and most of them are based in rural areas and they have outpaced our most favored so called big industries in our own country. This study also gets support from yet another independent study carried out by Organization for Economic Cooperation and Development (OECD) which says that SMEs constitute about 90% in any economy of the world therefore; this step of so called demonetization will not only contract the Indian economy but also render many of us homeless and jobless. The job market has already contracted to the extent of no return and people are simmering in the rural areas. India is a great country and just for the sake of black money the government cannot punish the common citizens of our country, the country knows who are those infamous people in our Industrial or business world who holds black money in tons. Recently Cyrus Mistry claimed in his famous e‑mail that Rs 500 cr. has been misappropriated in Air Asia launching and the central government is in the know of this information but is not able to do anything. The deal was struck in Singapore and we do not yet know who the real beneficiaries are and how the said money has exchanged hands. All of us know it well that small business establishments run mostly on cash in hands therefore, any disruption in this cycle may render many of them jobless. Now the question arises as to why the government has undertaken such a gigantic work which has decimated the lives of many of our innocent citizens at the altar of political move to be able to prove more nationalist than other party leaders. The total expenditure coming out to be around Rs 20000  crore in order to implement this so called demonetization and then remonetization process in 50 days. Why this huge sum has been wasted just to appease the home constituency of our prime minister? We could have tackled this fake note Cash Courier through proper police intelligence and checking currency smuggling with the help of proper technologies available with the government. When the government is not striking at the generation of the black money how could we be able to expect this to end simply because two currencies of higher denominations have been allowed to phase out. The government has already issued notes of two denominations i.e. Rs 2000, 1000 and 500 and expect Pakistanis not to print them in their own country is something like living in an island after having been disconnected from rest of the world and technology. There was news yesterday in news papers that a fake currency of Rs. 2000 denomination has already hit the Indian market. This government is under tremendous pressure from the public at large that it’s not able to withstand the kind of expectation our prime minister had generated during his election campaign in 2014. Normally the news of demonetization is brought out not even by governor RBI but by one of his deputies, look what happened here on 8th of November 2016 the prime minister took the mantle of Governor RBI himself and addressed the nation on the issue of demonetization, people are crying hoarse that it is an infringement on the autonomy of RBI. Black money has never been contained by demonetization; this has not succeeded in 1946 nor in 1978. A committee on black money headed by chairman CBDT way back in 2012 had not recommended demonetization very specifically, the then Governor RBI Mr Rajan had advised against demonetization but Modi is hell bent upon destructing anything which binds us together.

THE GOVERNMENT SHOULD HAVE LOOKED INTO SOME OTHER ISSUES WHICH STRIKES BLACK MONEY

There are many important issues which are very important and contribute directly to the generation of black money. Some of the issues are listed which requires immediate attentions of the Prime Minister.

DONATIONS TO POLITICAL PARTIES AND CRIMILISATION 

On 24th January 2017 Association of Democratic Reforms (ADR) issued a report on funding patterns of national and regional parties found that sources of only 16% of the donations were revealed while 69% came from donors whose identities were not disclosed. In the I-T returns of parties, donations from unknown sources were shown as income without being specific. Political parties are not required to reveal the names of individuals or organizations making any donation below Rs 20,000. But they need to mention them in the I-T returns. “As a result, over two-thirds of the funds cannot be traced and are from ‘unknown’ sources. This becomes very relevant in the light of the demonetization announced to weed out black money from the society,” the report says. The report also pointed out that while national parties were brought under the RTI Act by the CIC ruling in June 2013, they are yet to comply with the decision. The following table shows that congress receives from 83% of its donations from the unknown sources whereas BJP has got from the 65%.

 

                      Table showing Political Donations From Unknown Sources

POLITICAL PARTY

TOTAL DONATION FROM UNKNOWN SOURCE IN CRORE(Rs)

%age OF TOTAL AS COMING FROM UNKNOWN SOURCES

CONGRESS

3323.39

83

BJP

2125.91

65

SAMAJWADI PARTY

766.27

94

SIROMANI AKALI DAL

88.06

86

 UNDERSTANDING CASH FLOW

  • Contribution statements, detailing names and other details of donors who contribute above ₹20,000, are the only known sources of income of political parties
  • Unknown sources are income declared in tax returns but don’t mention source of income for donations below ₹20,000
  • Income of national parties from unknown sources increased by 313%, from Rs 274.13 crore during 2004-05 to Rs 1,130.92 crore during 2014-15
  • BSP is the only party to consistently declare receiving nil donations above Rs 20,000.

The report, which comes against the backdrop of the Centre’s surgical strike on black money, is based on the income tax returns and statements filed by six national parties and 51 regional recognized parties. This is also baffling that why parties are fielding millionaires and billionaires in the Loksabha elections, may be the pressure from business groups as most of the businessmen have become either politicians or politicians have become businessmen. The following table shows how parties have fielded moneyed men and their participations have been progressively increasing with the passage of time.

   PARTYWISE CROREPATIS CANDIDATES FIELDED IN THE LOKSABHA IN THE YEAR 2009 & 2014 ( IN PERCENTAGE)

PARTY

                                              YEAR

2009

2014

SAD

100

100

DMK

74

94

TDP

68

93

MNS

91

90

DMDK

46

86

LJP

8

86

RJD

30

83

TRS

78

82

AIADMK

60

80

INC

65

79

JDS

59

73

BJP

42

72

NCP

47

64

JD(U)

19

49

SHS

38

43

AITC

24

37

BSP

29

32

SP

33

56

 The other issue which should have disturbed our prime minister more is the criminalization of the politics as more and more tainted and charge sheeted people with serious crimes are gradually becoming the mainstay of the main stream political parties. The BJP claims to be a party with a difference has 35% of the MPs are facing grave criminal charges in the different levels of courts in the country.  Congress has 16% of their MPs facing criminal charges with Shivsena an alliance partner of BJP having maximum number of tainted MPs. These people have the maximum number of cases with murder, extortion, kidnapping, rape, drug trafficking etc and therefore, maximum amount of black money with them. Prime minister once said on the floor of the Parliament that he wishes to institute a fast track special court so that MPs cases are cleared as fast as possible but now about three years have gone by but PM’s promises made on the floor of the house is yet to see light of the day. The worry is not inaction on 

NUMBER OF CRIMINALS IN PRESENT LOKSABHA IN SOME OF THE PARTIES

 

PARTIES

TOTAL NUMBER OF MPs

NUMER OF MPs AGAINST WHOM CRIMINAL CASES PENDING

%age OF THE TOTAL

INC

44

8

16

AIDMK

37

6

16

BJP

281

98

35

SHIVSENA

18

15

83

SOURCE- ADR REPORT 2017

MPs WITH CRIMINAL CHARGES IN THE YEAR 2004, 2009 AND 2014

YEAR

PERCENTAGE OF MPs WITH CRIMINAL CHARGES

2004

24%

2009

30%

2014

34%

SOURCE- ADR REPORT 2017

 

This part but gradual increase in the percentage of MPs with the criminal charges over the years. In 2004 about 24% of the MPs were facing the charges whereas it rose to 30% and 34% in 2009 and 2014 respectively.

FLIGHT OF MONEY

This is the serious area where Prime minister should have given a serious thought. Roughly the domestic black money falls in the range of around 6% while 94% are stashed outside the country. Dev Kar and Joseph Spanjers have done an extensive report on the Illicit Financial Flows from Developing Countries during the year 2003-2012 providing  estimates of the illicit flow of money out of the developing world–as a whole, by region, and

 

TABLE- ILLICIT FINANCIAL OUTFLOWS FROM TOP TEN DEVELOPING COUNTRIES (2003-2012)

                                                                                            (in millions of nominal U.S. dollars or in percent)

RANK

COUNTRY

CUMULATIVE(2003-2012)

AVERAGE

1

CHINA

1392276

139228

2

RUSSIA

1049772

104977

3

MEXICO

528439

52844

4

INDIA

510286

51029

5

MALAYSIA

418542

41854

6

BRAZIL

226667

22667

7

SOUTH AFRICA

209219

20922

8

THAILAND

191768

19177

9

INDONESIA

180710

18071

10

NIGERIA

178040

17804

 

TOTAL OF TOP TEN COUNTRIES

4885718

488572

PERCENTAGE OF TOTAL COUNTRIES: 62.3%

SOURCE- Illicit Financial Flows from Developing Countries: 2003-2012 Dev Kar and Joseph Spanjers

by individual country–from 2003-2012, the most recent ten years of data availability.  The study finds that between 2003 and 2012, the developing world lost US$6.6 trillion in illicit outflows]. In real terms, these flows increased at 9.4 percent per annum. After a brief slowdown during the financial crisis, illicit outflows are once again on the rise, hitting a new peak of US$991.2 billion in 2012. India is ranking 4th in the list of top ten countries where illicit financial outflow is 510286 million dollars in between the year 2003-2012. This is the most important area where Prime minister should have looked into. Kar said, ‘’ Modi’s demonetization, although a huge and bold step, would at best have a transitory effect and temporarily chill illicit transaction in the pipeline. Although demonetization would have deflationary in the short and medium term but India’s long history of fiscal deficits, illegal off shore floes and growing inequality would combine to keep the informal economy kicking and alive for a long time’’

NO CREDIT GROWYH, NO JOBS AND NO GROSS FIXED CAPITAL FORMATION

(A)   NO CREDIT GROWTH

When credit is expanding or increasing, consumers can borrow and spend more and businesses can borrow and invest more. The expansion of credit tends to cause the price of assets such as property and stocks to increase, thereby boosting the net worth of the public. Increasing consumption and investment produces jobs and expands income and profits. The credit growth is directly related to the job growth. There total 15.64 lakh Micro, Small and Medium Enterprises Units (MSMEU) operational in India and contribute to 40% in our GDP and there is a decline in credit growth ever since NDA government came into being i.e. 2014, the following table shows its growth pattern over the years. The growth has taken a sharp decline in the year 2014-15 and it has also affected the job market very adversely. This would be appropriate to mention that MSME units are the biggest provider of employment to the Indian masses after agriculture. After demonetization this sector has taken a hit as we had already a very bad export in the last three years therefore cash crunch has not only uprooted the labor force but also rendered many of them homeless and land less. Most of the MSME units are based in rural areas and the banking infrastructure is absolutely conspicuous by their absence in those areas therefore, financial transactions were almost impossible and this not only led to stoppage of their work but also selling their immovable properties at a very dirt cheap price to the land lords who were financially better than them.

 

                           Table showing change in credit growth

 

YEAR ON YEAR CHANGE IN RATE OF GROWTH OF CREDITS

YEAR

ALL INDUSTRIES

MICRO AND SMALL

MEDIUM

LARGE

2011-12

20.74

12.58

7.53

23.32

2012-13

15.12

20.13

-0.07

15.56

2013-14

12.84

22.48

-0.48

12.25

2014-15

5.61

9.13

-0.32

5.33

2015-16

2.75

-2.24

-7.79

4.24

 JOBLESS GROWTH

Unemployment rate in India has shot up to a five-year high of 5 per cent in 2015-16, with the figure significantly higher at 8.7 per cent for women as compared to 4.3 per cent for men, says a report by Labor Bureau. The figures could be an alarm bell for BJP-ruled government at the Centre, which has taken a series of steps such as ‘Make in India’ to create jobs for inclusive growth in the country. According to the fifth annual employment-unemployment survey at all-India level, about 77 per cent of the households were reported to be having no regular wage/salaried person. It said the unemployment rate was estimated to be 5 per cent at all-India level under the UPS (Usual Principal Status) approach. Unemployment rate was 4.9 per cent in 2013-14, 4.7 per cent (2012-13), 3.8 per cent (2011-12) and 9.3 per cent (2009-10). Labor Bureau did not bring out any such report for 2014-15. “In rural sector, unemployment rate was 5.1 per cent whereas in urban sector, the rate was 4.9 per cent under the UPS approach, (The status of activity on which a person has spent relatively longer time of the preceding 365 days prior to the date of survey is considered to be the usual principal activity status of the person. The Usual Principal Activity status (UPS), written as Usual Status (PS), is determined using the majority time criterion) the report said. The figure was significantly higher among females compared to males. Female unemployment rate was estimated to be 8.7 per cent, whereas for males it was 4.3 per cent. In urban areas, female unemployment rate was estimated to be 12.1 per cent at pan-India level compared to 3.3 per cent for males and 10.3 per cent for transgender.  Jobless growth has given a very unique situation in our country where the country claims to be the fastest growing economy in the world though we are not able to create jobs for our youths. Skill development scheme has added another 35% employable youths in the country during the financial year 2015-16 and unless jobs are created the money spent on skill development will go waste. A study by Care ratings showed that the job growth in the year 2014-15 was only 0.3% which could be called as good as zero despite of the fact that every year about 15 million persons enter the job market in India. Contract jobs declined by 21000 during January- September,2015 compared to 1,20,000 in 2014.Employment generation in eight labor intensive sector was 4,90,000 in 2014 and 1,35,000 in 2015 compared to 12,50,000 in 2009 therefore, there is something missing in the policy initiative which needs to be corrected.

 

DECLINE IN GROSS FIXED CAPITAL FORMATION IVESTMENT

Gross fixed capital formation (GFCF) includes spending on land improvements (fences, ditches, drains, and so on); plant, machinery, and equipment purchases; the construction of roads, railways, private residential dwellings, and commercial and industrial buildings. GFCF is the barometer of any country’s growth and investment. In the year 2014-15 and 2015-16 it was 4.85% and 3.89% respectively and truly so because this is shown amply in the investment in various sectors of the central sectors of Government of India particularly in the strategic sectors. The growth rate also seems to nosedive in the context of demonetization as shown and reflected by various financial agencies in India and abroad. The Reserve Bank of India (RBI) has cut its GDP growth forecast for this financial year from 7.6% to 7.1%, citing the government’s demonetization exercise that sucked out 86% of the currency in circulation. Fitch Ratings lowered India’s GDP growth forecast for this fiscal to 6.9% from 7.4%. In its ‘Global Economic Outlook - November’ report on the currency ban, Fitch said consumers do not have the cash needed to complete purchases, and there have been reports of supply chains being disrupted and farmers unable to buy seeds and fertilizer for the sowing season.“Time spent queuing in banks is also likely to have affected general productivity. The impact on GDP growth will increase the longer the disruption continues,” Fitch said, adding the medium-term effect of the currency withdrawal on GDP growth is uncertain, but is unlikely to be large. Morgan Stanley cut growth estimate to 7.4% from 7.7% for 2016. For 2017, the growth forecast has been slashed to 7.6% from the earlier 7.8%. For 2018, the growth is pegged at 7.8%. Though the overall growth story remains on track, the government’s recent decision to replace high-value currency is expected to affect near-term economic activity, thus leading to a slower pace of growth recovery,” Morgan Stanley said in a note. In a research note, Bank of America Merrill Lynch also cut its growth forecast for India. “We see a 30 bps risk each to our 7.4% FY17 and 7.6% FY18 growth forecasts with demonetization set to hurt activity in December as well,” BoA said in a research note. India Ratings and Research revised its growth forecast for 2016-17 to 6.8%, 100 basis points lower than its earlier projection of 7.8%. “With the decline in cash holdings in the hands of the people and severe restriction in the flow of new cash, consumption demand has also fallen impacting both wholesale and retail sales. Anecdotal evidence suggests that the cash squeeze has reduced sales in the informal sector by 30%-40% during the first fortnight following the de-legalisation,” it explained in a research note. Ambit Capital has cut the country’s GDP estimate for 2016-17 to 3.5% from the previous 6.8%. The following table summarizes all of them together. 

Table showing the assessment of growth rates after demonetization by different agencies

 

NAME OF AGENCIES

PREDICTIONS OF GDP IN THE 2017-18

RBI

FROM 7.6% TO 7.1%

Fitch Ratings

 

 FROM 7.4% TO 6.9%

 

Morgan Stanley

 

FROM 7.7% TO &7.4%

Bank of America Merrill Lynch

 

FROM 7.6% TO 7.4%

India Ratings and Research

FROM 7.6% TO 6.8%

Ambit Capital

 

FROM 7.6% TO 3.5%

IMF

FROM 7.6% TO 6.6%

WAS THIS INFORMATION LEAKED

There were suspicions that the action of demonetization was leaked to a select group of people and this was reflected in the bank deposits being done in the month of September 2016 as shown in the table below. The deposits in the September 2016 is by far the largest in two years and constitutes about 13.46% rise over the last year deposits in the same month and same year. Different economists have different views about it, some say that prior to festive season it was the accumulated cash which was deposited to the banks whereas the other school of thought centers around the implementation of 7th pay commission and release of arrears to central government employees before festivals.  The rise of 13.46 is huge and comes to around 12 lakhs whereas the central government kept a provision of only one lakh crore for the 7th pay commission therefore, this needs a thorough examination.

 

DEPOSITS WITH SCHEDULED COMMERCIAL BANKS

MONTH WITH YEAR

DEPOSITS AMOUNT(Rs in crore)

                                 GROWTH (%)

             Y-o-Y

             M-o-M

APRIL 2015

8755110

11.11

2.0

MAY 2015

87,89270

10.85   

0.4

JUNE 2015

8798540

12.05

0.1

JULY 2015

8998030

12.68

2.3

AUGUST 2015

8982190

11.39

-0.2

SEPTEMBER 2015

8997120

9.97

0.2

OCTOBER 2015

9140030

10.43

1.6

NOVEMBER 2015

9124760

9.71

-0.2

DECEMBER 2015

9184650

10.18

0.7

JANUARY 2016

9338810

11.58

1.7

FEBRUARY 2016

9372270

9.60

0.4

MARCH 2016

9378650

9.24

0.1

APRIL 2016

9577250

9.39

2.1

MAY 2016

9566430

8.84

-0.1

JUNE 2016

9595530

9.06

0.3

JULY 2016

9739790

8.24

1.5

AUGUST 2016

9610160

6.99

-1.3

SEPTEMBER

10208290

13.46

6.2

OTHER EFFECTIVE WAYS TO COMBAT BLACK MONEY

If the Prime Minister is really serious about weeding out corruption and black money then he should concentrate on following issues very seriously‑

(A)Electoral reforms should take the utmost priority if black money is to be finished to a large extent. There are some issues to be considered for electoral reforms as below

(1)    All the political funding should be routed through Election Commission

(2)     State funding for election should be the model concept to run an election.

(3)    There should be a concrete landscape for internal party democracy and all the parties be brought to RTI ambit

(4)    There should be an outer ceiling for expenditure in election for a candidate either in parliament or assembly

(5)    Accept Election commission of India (ECI) proposal to legally empower it to cancel elections where credible evidence of abuse of fund is found.

(6)ECI should be empowered to debar persons against whom cases of heinous crimes are pending

(7)ECI should be empowered to deregister those political parties which have not fought any election since last ten years and availed income tax exemptions

(8)Make paid news a criminal offence

(9)Make ECI a complete independent body and powerful.

 (B) Tax heaven countries and participatory notes be the subject of past

(C) Offset policy in defense should be strictly monitored and companies opened under this policy should not be closed after having functioned and their money trail should be investigated

 (D) There should be a change in taxation law and the sphere of direct taxes be increased in such a way that all big people should be brought under its ambit. Direct taxes should be increased to at least more than 50%

(E) Laws should be made easy for doing business

(F) Banking system should be strengthened. Today we have 27% of total villages have bank connectivity within 5 km of distance.

(G) We should improve upon our home policy so that communal tension eases out and level of terrorism must come down. We should leave Mandir‑Masjid and cows issues way behind. Communal harmony will bring down terror politics.

(H) Government should spend more on education, health and social security schemes While the black money converted into white may come into the banking system, how much of the fake currency will get weeded out? If the fake currency is already in circulation, it only means that one or two of the notes that you or I deposit in the bank, will turn out fake. Who takes the hit in that case - The common man.

 

NUMBER OF CMPANIES PAYIN TAXES OVER Rs. 100 CRORE DECLINES IN 2013-14-

 

2013-14

2012-13

2011-12

COMPANY.

BUSINESS INCOME OVER Rs 100 CRORE

683

742

724

TAX PAYABLE OVER Rs.100 CRORE

258

270

259

FIRM.

BUSINESS INCOME OVER Rs. 500 CRORE

0

0

2

BUSINESS INCOME OVER Rs. 100- 500 CRORE

16

15

28

TAX PAYABLE: Rs 100-500 CRORE

0

0

1

INDIVIDUAL:

SALARY INCOME OVER Rs100 CRORE

2

2

0

TAX PAYABLE: Rs 100-500 CRORE

3

2

3

TAX PAYABLE OVER Rs. 500 CRORE

1

0

0

ALL TAX PAYERS

39128247

306075691

31288559