Thursday, Feb 02, 2023

History and 50 days

With demonetisation, PM risked political capital, people took leap of faith — shoddy execution does disservice to big idea.

demonetisation, india economy, indian economy, history of indian economy, curb black money, black money, dodging taxes, tax evasion, hold tax evaders, demonetisation history, narendra modi government, BJP government, india news, indian express news Demonetisation could not avoid being disruptive — at one stroke, 85 per cent of the currency in circulation was pulled out of the economy. (Illustration by C R Sasikumar)

Coming on the heels of a voluntary disclosure scheme, which offered an opportunity to those dodging taxes to pay a penalty and come clean, the demonetisation drive signaled the government’s seriousness about curbing black money. The landmark move, which completes 50 days today, also envisaged a progressive shift to a cashless economy with a greater focus on electronic transactions and the formal banking sector. For a country that has long tried to bring the parallel economy into the tax net, the salience of the move cannot be overstated. Demonetisation could not avoid being disruptive — at one stroke, 85 per cent of the currency in circulation was pulled out of the economy. It also entailed considerable political risk — no matter how well planned, it meant hardships for the aam citizens. For Prime Minister Narendra Modi, it has meant putting his tremendous political capital at risk, alienating, potentially, his party’s core base of traders and businessmen. By all accounts, however, people, in general, have endorsed the intent, acknowledged the long-term goals even if it has meant braving serpentine queues in banks and ATMs. Or suffering the indignities of being viewed with suspicion through the more than five dozen orders that have been issued.

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That is why the government, by not always matching the composure displayed by the people, has done a disservice to its own big idea. Demonetisation has not been carried through with the assurance required by a move of such consequence. Some of the hardships could have been mitigated by homework. It took a week, for instance, for the new Rs 2,000 notes to reach the ATMs simply because the machines had not been properly calibrated. There was little to reduce the problems of the informal sector, labourers, farmers and small firms. The government’s announcements in the last two weeks also give rise to fears of a return to “inspector raj”. It had initially said that deposits of the demonetised notes amounting to less than Rs 2,50,000 will not be probed. Later, the IT department announced that it will look into “suspicious” and “unusual” deposits even if they are less than Rs 2,50,00. The government’s December 28 ordinance, that talks of penalising people who possess “large numbers” of the scrapped notes, betrays an anxiety unbecoming of a regime carrying out far-reaching changes. The ordinance justifies the proposed fines on grounds that they will deter a parallel economy in the demonetised cash. But according to the RBI, a little more than 80 per cent of the demonetised money had been deposited in banks by December 10 and this percentage would have gone up since.

Instead of issuing directives that go against its credo of “maximum governance, minimum government”, or using the cover of good intentions to brush vital issues under the carpet, the government would do well to address the snags that threaten to jeopardise its bold, daring move. It needs to create sound digital infrastructure, address the shortfall in point of source terminals, draft robust privacy laws. It needs to appear far more sure-footed and responsive to people’s concerns as the economy undergoes a major disruption — towards, hopefully, a more robust transition.

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First published on: 30-12-2016 at 00:51 IST
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