The Prime Minister’s ‘surgical strike’ on black money late on Tuesday evening took most by surprise as was its intention. Coming at the back of the voluntary disclosure of black money along with a one-time amnesty scheme, the decision to scrap Rs 500 and Rs 1,000 notes is seen as a bold move; one that will unleash some amount of chaos, confusion, and lack of liquidity in the system. Thank god for our plastic money and ability to use it everywhere, eh? From Olas and Ubers to Amazon and Snapdeal, the new Indian is steadily moving towards a cashless society. But the sudden scrapping of currency notes will hit the common man who still transacts using cash. A minor inconvenience towards a cleaner system, said PM Narendra Modi as he addressed the nation.
Now let’s analyze the move. Rendering Rs 500 and Rs 1,000 currency notes as illegal tender will curb domestic black money. This decision was long coming. Having tracked the government’s endeavours since 2014 to bring back money stashed abroad, most experts I spoke to were of the view that there is some serious amount of moolah lying unaccounted for in people’s homes in India, perhaps in boxes, mattresses and pillows. Ajay Agnihotri, who served as assistant director-general of the Economic Intelligence Bureau in 1983-’92 and 1997-’01, had told me that according to his estimates, as of 2013, there was Rs 29 lakh crore black money in India! But most of it lies invested in real estate, stock markets and jewellery already. So good luck making much headway in that.
Two years ago PM Modi set up the 13-member Special Investigation Team (SIT) headed by former Supreme Court judge M B Shah. The parleys and negotiations with foreign banks and governments kickstarted to bring back black stash. The government claimed in June this year that over Rs 13,000 crore of undisclosed money had been unearthed from overseas accounts. That money is yet to come into government coffers. So in the meantime, the attention has been diverted to money for which income tax has been evaded in domestic shores. Or so they say.
In February this year, Union Finance Minister Arun Jaitley unveiled a four-month window between June 1 and September 30 whereby domestic black money holders can pay 45 percent on the undisclosed income and assets (tax 30 percent, surcharge 7.5 percent and penalty 7.5 percent) and become compliant.
Scrapping of Rs 500 and Rs 1,000 notes that are in circulation more than their admissible amount turns the heat on fake currency and terror money. While speaking to National Investigation Agency’s (NIA) officials, I got the sense of the government and Reserve Bank of India’s sustained efforts to clamp down on fake Indian currency note (FICN) by introducing more security features and also tracking and bringing to book people transacting in fake currency coming from abroad. Reports suggest that there around Rs 5,000 crore of fake currency that has been pumped into the India by Pakistan’s ISI to finance terror. India sent her first dossier to Pakistan on the issue of FICN in 2014. Therefore, the move to scrap Rs 500 and Rs 1,000 notes comes as an encouragement to the Indian administration that is fighting to curb terror money. So that and not curbing black money is the main aim of PM Modi’s move.
And rest assured, the people with the crores and crores of black money did sleep peacefully last night. Their money is still safe in a foreign bank account. Even as the government puts pressure on various foreign governments to bring back black money tucked away by Indians abroad, there has also been an increase in the number of tax havens. Switzerland, Liechtenstein, Andorra, the Cayman Islands, Gibraltar and the Isle of Man are old favourites, the new hot spots for Indians are Tunisia, Mauritius, Hong Kong, Singapore, London, Samoa, the Marshall Islands and Vanuatu. Now bringing that back will be the real victory for this government.