Demonetisation Was A Political Gimmick In The Name Of Black Money. Here’s Why.

Posted by Altamash Shams' in Business and Economy, Politics, Society
February 27, 2018

In April 2014, the Bharatiya Janata Party (BJP) released its election manifesto. This is what it mentioned about black money.

“By minimizing the scope for corruption, we will ensure minimization of the generation of black money. BJP is committed to initiate the process of tracking down and bringing back black money stashed in foreign banks and offshore accounts. We will set up a task force for this and to recommend amendments to existing laws or enact new laws. The process of bringing black money to India what belongs to India, will be put in motion on priority. We will also proactively engage with foreign Governments to facilitate information sharing on black money.”

Well, the obvious inference is that demonetization was a pre-planned idea of the elite leaders of the party. Also, the major events that occurred  — the  launch of the “Pradhan Mantri Jan Dhan Yojana“, the removal of former RBI Governor Raghuram Rajan – before demonetization, supports the inference we made. The removal of the former RBI Governor, who still had his second term and who was a former IMF chief economist and the one who had predicted the global financial crisis of 2008, raised some serious questions.

The manifesto failed to deliver on its promise. In the 2016 budget, there were amendments for the tax-evaders to take advantage of the one-time tax compliance window to disclose their foreign assets by paying 30% tax and 30% penalty. Much of black money never did come to India, as it was invested in real estate markets in UAE or somewhere else. No such engagement for information sharing is yet available or disclosed. If that was the case, many others like Vijay Mallya (popularly a loan defaulter, but also a tax-defaulter) would have been traced by now, as they will have duplicate accounts using pseudo names.

Is tax-evaded money known as black? If then, to tackle this problem, simple income-tax raids would suffice. In my opinion, raid is the practical and feasible solution to tackle black money problem domestically. Raghuram Rajan too had opposed the demonetization exercise by clearly stating that more focus must be on tracking data and better tax administration on where the money is not being declared, and as well as on the incentives to generate and retain black money.

The bigger problem is not black money but the corruption and scams that make use of public money. The most corrupt are our political leaders; their affiliated parties, organizations, societies, companies and so on. The generation of black money is mainly due to them. They may not be actual tax-evaders, but they are the generators of black money besides businesspersons, professionals and celebrities. And if this black money had been stashed in foreign banks, as was supposedly preached during elections, then what has been the real motto of demonetization?

When everyone knows the real problem, why then is the so called ‘solution to the problem’ addressed to the middle class and rural India?

In a country where movies are made that  make a mockery of logic and facts, it is easy to take advantage of the general public. Through exaggerated emotions, our politicians manipulate us. As a result, we forget logic and are sold on any trending issue. This becomes a powerful tool in the hands of our brainwashers and political preachers.

Movies like “Shivaji-The Boss”, “Leader” and many others have already created this deep-rooted delusional impression in people’s minds that cash is the only black money. that the big villains stash their money inside their houses. Do they not invest in companies, real estate and stock markets of other countries? Why would they keep the money in the form of cash for years?

In fact, only 4.9% of the total black money is in the form of cash. The data available is of undisclosed admitted income and in that too, the sum of cash, jewelry and other assets do not even make 50% of the admitted undisclosed income. As for the rest of the undisclosed income – is it difficult to track? Only the government knows! If the government wills it, surely it can seize everything of the parallel economy. But it will never do that because the government itself is the main party of such an economy.

Now, coming to the point of domestic black money, how did demonetization help in curbing it? Did demonetization achieve its objective? No. Income-tax raids on a large scale and still better tax structure, higher rates of penalties, implementation of innovative ways for tracking black money holders, well-planned police and CBI raids on criminals, smugglers and black dealers should have been the focus of the government. The proper functioning of the Lokpal, that has still not been set up, might have reduced the extent of black money generation by exposing the scams (small or big) of political leaders. But the government had a very different idea.

It’s not the first time that India has seen the cessation of legal tender. In fact, demonetization in 1946 and 1978 were also unsuccessful and opposed by RBI during those times. However, demonetization of higher currency notes in 1978 had benefited in terms of currency value and curbing inflation. But the efforts to curb black money have gone in vain.

These elites of the ruling party want to show people that they are reforming the country with their ideas and policies. Thus, they tend to form a policy in a way to attract attention and publicity and implement their political gimmick. They do it because it’s very difficult to bring a change, and therefore, they censor information through their mediums, inject the impressions of their deceptive half-truths into the people’s minds and brainwash them as per their needs. Finally, the people are convinced that change has indeed happened.