Cash & Banks
By Shivaji Sarkar
Fetish of any kind is bad. Of late, the society has started a cleaning operation to the extent that it has blocked many normal functioning. The phobia of black money, which unfortunately could hardly be traced except piecemeal, has led to a tormenting situation. Every day a new order is issued by tax authorities to wash the clean money or give proof that the money has no taint.
The purpose is to collect more tax. It may have marginally increased but the government itself has come out in the Economic Survey that most taxpayers are at the threshold level of around Rs 2.7 lakh annual income. Ideally, this group should not pay the tax and minimum taxable limit should be raised to Rs l0 lakh.
States need to understand that people are born to live in a free environ, thrive and a small part of it should be the taxes not the major part of their income. On an average, an income-tax payee is shorn off over four months of his earning to pay direct taxes and other levies. The GST in States like Uttar Pradesh has not subsumed many duties like the excise and duties.
The State has to understand that it cannot continuously squeeze people. Forcing them to make purchases through intermediaries is another decision that hurts the economy. Intermediaries extract their costs for doing nothing or a facilitation that is not required. Cashless, now even RSS sarsanghchalak Mohan Bhagvat says, at his Mumbai address, is not possible.
Cashless means bankisation — all transactions through banks, practically an artificial intervention for the benefit of bankers. The bankers have caused enormous problems in the US, EU and even Japanese societies. In all these places, the banks have become the worst extorters. Unfortunately, India has not learnt from the woes of those communities. No transaction could be faster and cheaper than in cash. Any intervention is not in the interest of a free economy.
The cash flow interrupted for sometime after demonetisation. It improved during the last over one year. It did not, however, happen everywhere. The hinterlands of UP, Bihar, Orissa, MP and Rajasthan Andhra Pradesh, Telangana, Maharashtra, Manipur and Uttarakhand always had a problem of cash.
Andhra Pradesh Chief Minister Chandrababu Naidu, in an interaction with journalists during the last Budget session of Parliament session, said his State was in a critical situation as cash flow has not resumed to its normality since demonetisation.
The events of the last 15 days testified that whatever Naidu was saying was correct. It is also strange that whichever party holds the reins takes up the unpleasant task of defending the indefensible — the officials who mess up the system.
Authorities are now saying that 16 per cent of the ATMs across the country are without cash. It seems to be an understatement. During demonetisation, the banks are on record stating that at any given time 25 per cent of ATMs are not functional. So the present figure should be 25 plus 16 that is 41 per cent ATMs are inoperational. That tells that the country is not yet ready for managing the 2.3 lakh ATMs dispersed in the remotest parts.
For the past over two months, all banks had problems in giving wads of Rs 100 or Rs 200 currency notes. Some banks managers say they were not being given the required currencies as per the normal demand since January. Worse, nobody within the system tried to study it or was it not done deliberately to keep it under shroud. Possibly, it was not expected that the situation could blow up.
The banking system of late has been burdened with many additional functions, including managing 31 crore Jandhan accounts, many of which have little deposits. Overall forced demand on banking transaction has increased. Earlier such burdens were shared by the postal money order system, direct cash dealings and the minimum dealings through bank pay orders and many through cheque transfers. Now the online managing of accounts, transfers, levying penalites and other modes have increased their burden. Even aadhar operations are being managed by the banks.
The problem accentuates with reduction of manpower in banks. Secretary, Department of Economic Affairs S C Garg, says there has been an unusual spurt in demand and supply has not kept in pace. But is he correct?
“In the current month, in the first 13 days itself, currency demand increased by Rs 45,000 crore,” the Finance Ministry said in a release. The government said it is not supplying any additional Rs 2,000 notes. Around Rs 6.7 trillion of Rs 2,000 notes are in circulation at the moment. As on April 6, total currency in circulation was Rs 18.43 trillion, compared with Rs 17.98 trillion a few days before the November 8, 2016 note ban.
As per these statements the crunch is highly unusual and unlikely. If Rs 1 lakh trillion more currency notes are in circulation, the crunch looks strange. But if SBI is to be believed there is Rs 70,000 crore shortfall of currency. This means there is some mismatch in the official statement on availability of Rs 18.43 trillion notes. The SBI research team says that the demand is at Rs 19.4 trillion and the availability is Rs 17.75 trillion, shortfall of Rs 1.65 trillion.
This raises the question of sudden spurt in demand. It looks like the demand accumulated and since it was not being met, it has burst now. This is the harvest season. The demand for cash for sale on cash is natural. Some attributed it to the ensuing Karnataka election. But there was no such shortage during the 2014 General elections. So it looks an overstatement.
A growing economy would need more cash flow. Suppressing it through official intervention either through the tax departments’ diktat or any other means hurts the economy. The nation cannot be servile to tax or any other suppressive system. It is time that the fetish for cleaning up is given up and let the economy take its own growth route. Checking water flows by building dams affect its quality. So it is about the economy. If one puts barriers in the natural growth, it gets stunted.
Let us simplify, reduce direct tax, raise taxable limits and stop what often is called the taxman’s terror. Such steps lead to rent-seeking and consequent slowing of the economy. The nation across political spectrum needs to loosen the control on the economy. Let it thrive and let the nation grow.— INFA