Narendra Modi’s bold step to cleanse the economy merits public cooperation and deserves every success. However, I cannot help but wonder whether in the absence of an integrated raft of measures that are firmly and impartially implemented, demonetisation alone can have more than a short-term impact.
Even more important, will demonetisation reduce poverty and narrow the gap between rich and poor?
Watching the massed crowds outside banks and ATMs, I am reminded of the Oxfam report An Economy for the 1%, which showed earlier this year that 62 individuals now have as much wealth as half of humanity or 320 crore people. The wealth of the richest 62 has increased by more than half a trillion dollars to $1.76 trillion since 2010 while the wealth of the poorest half of the global population has fallen by 38 per cent or a trillion dollars. This has occurred despite the global population increasing by around 400 million people during that period.
Since India can’t be the exception to the global norm, this proportion must also apply to our society too. Yet, the long queues at banks and ATMs seem to be made up of very ordinary folk. Leave alone the “crorepatis” Rahul Gandhi didn’t find, I didn’t even see any doctors or lawyers I recognised. And, yet, these professionals notoriously refuse to accept anything but cash for their increasingly exorbitant fees. They must hold a sizeable share of the 86 per cent of the demonetised notes amounting, according to Arun Jaitley, to some Rs 14.6 trillion.
Presumably, the government will get round to also checking land records, investigating property transactions and inspecting the records of goldsmiths and jewellers. They are as relevant to black money as the notes ordinary people are desperately trying to deposit or change into smaller denominations. Some are trying to cash cheques. Modi’s intention in initiating the massive exercise is also threefold. He wants to mop up untaxed and unaccounted cash, prevent terrorist activities being funded, and ensure that the notes in circulation are not the handiwork of foreigners out to sabotage the economy.
These various ends are not unattainable. But they can be achieved only if each and every demonetised bank note handed in is meticulously examined and traced back to the depositor. The way bundles of notes were being tossed into a corner in a bank where I watched operations, this doesn’t seem very likely. Careful scrutiny doesn’t come readily unless there is a personal or political motive.
At one time returning Indians had to fill in a form saying how much foreign currency they had on them. It was stamped at the entry counter and returned to the passenger. Later, I was told there was a brisk market for these forms. The RBI didn’t keep a copy. The figure entered was not in words. So, if you entered $60, the buyer could add as many zeroes as suited him and that much (less the cost of his purchase) would be converted from black to white.
Those forms were abolished long ago. But is there any reason to suppose that the vast and anonymous bureaucracy that handles these things is any more conscientious nowadays? Even if every note is scrupulously checked and it’s discovered some are forged, the government can at best destroy them. The depositor – if traceable – is very likely an innocent link in a long and complicated chain. The actual couriers won’t be sitting around waiting to be caught.
As for terrorism, yes, the government can make sure there is less money to fund criminal activities. But how does anybody know which depositor would have used his money for nefarious purposes? For that matter, can it be taken for granted that a cash hoard proves criminal activity more than property or gold? People like builders work in cash because they have to constantly make relatively small payments all down the line in a trade where few have bank accounts. Some are psychologically averse to the banking system. Others need cash because they travel.
I was once badly inconvenienced in Puri because my bank didn’t have an ATM there. The local SBI manager explained he could give cash against credit cards only to foreigners on production of their passports. There was no alternative to cash. When I lived in Singapore, the law permitted every payment by cheque. That is not possible in India.
Possibly the biggest demand for cash is from electioneering politicians. The joke about the late Viswanath Pratap Singh, who was prime minister in 1989-90, was that if he was indeed “Mr Clean”, as his admirers called him, how did he ever win an election. Let us not forget that Atal Bihari Vajpayee himself told a parliamentary committee on the record that every legislator in India starts his legislative career with the lie of the false expenditure returns he submits.
The increase in a candidate’s spending cap from Rs 40 lakh to Rs 70 lakh for the 2014 Lok Sabha election doesn’t seem to have corrected the crime Vajpayee spoke of. The Centre for Media Studies claims that “unaccounted for” money pumped in by “crorepati” candidates, corporates and contractors pushed up the cost of electing 543 MPs.
Indians are probably a more suspicious people than circumstances warrant. But no one will believe that elections in this country will ever be fought on goodwill or reputation alone. Or that politicians won’t make hay while the sun shines. Think of the so-called “farm houses” MPs and other Delhi glitterati have built.
The other conviction that dies hard was voiced by the former Congress minister and present deputy leader of the Opposition in the Rajya Sabha, Anand Sharma, when he alleged that “some people” had prior knowledge of Modi’s move. He asked the government to release the names of those who made investments of over Rs 5 lakh in gold, foreign exchange and bonds in the 20 days before the announcement. He should have included purchases of land and buildings.
Returning to the Oxfam report, Winnie Byanyima, Oxfam International Executive Director, has “challenged the governments, companies and elites at Davos to play their part in ending the era of tax havens, which is fuelling economic inequality and preventing hundreds of millions of people from lifting themselves out of poverty”. She accuses multinational companies and wealthy elites of “playing by different rules to everyone else, refusing to pay the taxes that society needs to function”. Apparently, 188 of 201 leading global companies have a presence in at least one tax haven.
It is estimated that 30 per cent of Africa’s financial wealth is held offshore, meaning $14 billion of tax revenues lost every year. This is enough money to pay for healthcare for mothers and children throughout Africa to save four million children’s lives a year, and employ enough teachers to get every African child into school.
India can’t be lagging far behind.
The writer is the author of several books and is a regular media columnist