Demonetisation may not end black money

The secrecy angle is clearly not helping in implementation of this decision.

Written by Kanishka Singh | Updated: November 21, 2016 1:44 pm
demonetisation, demonetisation black money, black money india, Narendra Modi, demonetisation policy, currency demonetised, currency notes, currency banned, Rs 500 note, Rs 1000 note, india news, indian express Top experts in the country estimate that black money in cash is only about 1/20th of the black economy.

Demonetisation has become the demon word for much of India’s population in recent weeks. Though many agree with the policy, others complain about the manner it was implemented. It has been tough, confusing, desperate and smeared with dollops of patriotism, perhaps, to deviate the minds from its intricacies. The question, however, is: will demonetisation actually put an end to black money, which itself is a complicated entity and not restricted to currency. At best, the move is only curbing the black wealth accumulated in the form of cash and leaving out a massive amount of black wealth converted in form of gold, shares, foreign currency and other financial instruments away from the effects of demonetisation.

WATCH VIDEO

 

Black money is essentially income which is generated on a regular basis via unscrupulous means or accumulated unaccounted wealth to evade taxes among other reasons. It is a never ending exercise. The largest source of black money in the country is tax evasion. The government estimates that only about 3 per cent of Indians pay income taxes. Further, evasion of VAT, service tax, excise, customs are way too common.

Top experts in the country estimate that black money in cash is only about 1/20th of the black economy. Demonetisation is generally done in countries to save its economy from going bankrupt by immediately reducing liquidity in the system. Financial institutions remain a little stable.

The secrecy angle is clearly not helping in implementation of this decision.

The current situation risks affecting production, particularly in the agriculture sector. The consumption will fall drastically as well. CII has already estimated that retail sector has crashed by 50 percent. In terms of production, Kharif season has finished with the harvest in Maharashtra and northern states. East and south will see the end by December. When the time for sowing Rabi crop arrives, and if it gets delayed, as is being seen in parts of Punjab, Haryana, Gujarat etc, the impact would be much more grave in southern India and eastern states.

WATCH VIDEO: How Demonetisation Impacts Rural Population

In such a situation of disruption in production, job creation is threatened and income generation is seriously undermined. In the near future, inflation rates will fall due to low levels of liquidity, but in the longer run, the risk is much higher for prices to increase sharply as the moment figures of low produce of Rabi crop are announced, fears of shortage will drive up the prices.

Private investment industry has also taken a hit with investors holding on to their investments in times of heightened uncertainty. Till there is some solid confidence instilled in the financial system, investors are likely to hold investments even in lower interest rates.

Economists are predicting a fall in GDP for this year by around 0.5 per cent and is expected to be around 7 percent, which is a major letdown. The impact is expected to last around 4 quarters before the economy sees any growth in GDP and the quantum of growth, realistically speaking, is highly unlikely to touch figures it dropped from which is 7.6 per cent.

WATCH VIDEO: Aamir Khan On Demonetisation

The informal sector, which is the largest employer in the country, primarily for unskilled workers, is also expected to take a hit in for a lasting period. The sector is driven mainly on money from financial institutions of the informal financial market. These institutions include chit funds, money lenders and hundis. The major effect will be seen on the cash holdings of these bodies. The dip in their holdings will take a while to come back to their previous levels. It remains to be seen that if the sectors which can tap into banking credit or formal credit are able to bear the the tide.

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  1. O
    oswin
    May 2, 2017 at 5:28 pm
    guys can any of u give me some points in why demonetisation is not a success in eliminating black money. its for a debate so pls fast anybody
    Reply
    1. H
      Haren
      Nov 20, 2016 at 7:58 pm
      This denomination is going to have big effects on congress party, there will be some one who will oppose his leadership, Reason, he is also poor Aam admi.
      Reply
      1. E
        Earthkeeper
        Nov 20, 2016 at 7:31 pm
        I think the author has not done his homework . He has not heard expert reviews yet . lt;br/gt;3 percent of black money is excpected to be destro by demonotisation . That also if everything happens in a fair way which will never happen. So net result will be probably diluted to less then 0.1 percent . Which is 1/1000 of the total 93 lack crores of black money in india . What a waste of time and energy for fake propaa
        Reply
        1. I
          IML sood
          Nov 20, 2016 at 7:39 pm
          essment of the reporter is like famous 'zero loss theory' which proved utterly wrong and absurd.
          Reply
          1. S
            Sane Indian
            Nov 20, 2016 at 5:13 pm
            Speculative Reporting...
            Reply
            1. K
              Kabhi na
              Nov 23, 2016 at 3:56 am
              Chil Maro,lt;br/gt;10% mey Bank walla sab badal key dey raha hai.lt;br/gt;lt;br/gt;Staff log bhi 10% mey purana note exchange kar raha hai.lt;br/gt;lt;br/gt;Jo paisa dhanda mey lagga hai woh rotation mey wapis atta hai, ghar par koi nahi rakhta. lt;br/gt;lt;br/gt;Black and money is part of India, jaisa tha waisa hi sab wapis ho jayega in 6 months.lt;br/gt;lt;br/gt;In the mean time hunger related deaths will happen. Aur jyada imandar ka hi jyada thukega.
              Reply
              1. A
                Ajay G
                Nov 21, 2016 at 3:21 am
                Credit Card and Debit Card distribution must be done on war footing, to augment success of this scheme. lt;br/gt; lt;br/gt;Aam Aadmi spends more than 500 /- only in grocery shop. lt;br/gt; Commom man spend less than 500/- in one transaction with Auto Walla, Subji wallah, Dairy Owners.
                Reply
                1. A
                  Ajay Anand
                  Nov 20, 2016 at 3:26 pm
                  Why people evade tax? You take high rate of excise duty. Then you charge VAT at every step of transaction. This results in taxation at multiple level. Restaurant bill includes VAT plus service tax. You charge for ATM, Debit Card and credit card transaction. You charge VAT plus service tax on mobile bill. Then there is octroi which will be replaced by state entry tax even after GST. Thus, a person in the highest income tax bracket ends up paying more than 60% as tax. You charge road tax and parking charges at the time of registration of a vehicle. Yet a person needs to pay parking charges at every stop. He also needs to pay toll tax in spite of paying road tax. hiji agitated against salt tax but salt is being taxed in our country. After the taxes, people also have to pay chanda for numerous pooja, jagarans and bhandaras. He also needs to pay for shagun at social functions. He needs to pay about 23 rupees as excise on petrol. All of this motivates a person to find various loops to evade taxes. The chartered accoutants show all the ways and means on how to evade taxes. Make life simple for a common man and reduce taxes. In spite of paying taxes, we don't proper road, public transport, medical care, education, etc. from government. Horrible quality of education at government schools forces people to look for private schools. Give quality education so that people would make a beeline to government schools the way they go mad for a seat in IITs or IIMs.
                  Reply
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