By Shivaji Sarkar
The ‘operation clean money’ has had a huge cost on India despite gains in some sectors such as boosting bank coffers and the real estate, where prices bottomed to realistic level. It impacted almost every segment of life from agriculture to industry.
Still, however, despite higher numbers of notes in circulation, cash is not easily available in many States. People feel that the 100-rupee notes are not easy to find and digital payments have a hidden cost, particularly for small businesses. Inflation has made their task a bit more difficult.
Households have shown this in lower savings and higher outgo in taxes. From 2010 to 2018 compounded inflation is about 65 per cent and income tax rates have not changed. Bank deposits are eroding due to tax on interest accrual, which is considered as income by the Income Tax department though in reality it is not an earning but a mere hedging against inflation.
It must do away with the TDS on bank deposits, as this is detrimental to the cause of long-term economy. Impoverished geriatric people and women are losing more and cursing the powers-that-be. The number of psychiatric patients in post-50 age group is increasing in a country, where despite Ayushman Bharat, initiative health care remains inadequate and expensive.
Demonetisation was supposed to create a new era. Policies and plans have to change to help people grow. It calls for lowering of personal I-T rates to around 15 per cent, if not abolish. Sales are gradually growing but allowing people to have higher deposits without a tax would pace up growth. Even otherwise it needs to be understood that bank deposits are savings after paying I-T. Is it not double taxation on the same income?
The note ban not only saw Rs 15,310.73 billion of about Rs 15,417.93 billion coming back but it also cut into the Reserve Bank of India’s coffers. This was against an expectation of Rs 3 to 4 lakh crore of black money getting extinguished. It lowered Government’s dividend income by Rs 35217 crore! The RBI could thus transfer dividend of only Rs 30,659 crore in 2017 against Rs 65,876 crore in 2016. This is attributed to the cost incurred in printing new notes.
The RBI has had to recount the accumulated banned currency a number of times. It too has its cost and now destroying those notes would also have its cost. The cost of remonetisation — printing new currency— and collection of old currency has huge cost. The collection costs do not have strong statistics, but printing costs of 500-rupee, 2000-rupee and 200 rupee notes, as per a statement of Minister of State for Finance P Radhakrishnan in Lok Sabha is Rs 6816.43 crore. The RBI annual report says new notes cost Rs 7965 crore in 2016-17 compared to Rs 3420 crore in 2015-16.
In short, the cost doubled and as per RBI because of the sudden withdrawals of currency notes that impacted the Tier II cities and beyond, rural economy and even agriculture. The impact on the durables and appliances segment was palpable as this market still operates 80 per cent on cash.
The South Asia office of World Bank found that the note-ban impact was the highest in rural districts with lower banking access. It also accrued lower net interest accrual, decrease in income from foreign sources because of a choppy rupee along with some other factors causing a drag in RBI’s income.
The tiny amount of approximate Rs 13,000 crore not being returned is stated to be locked with NRIs, Nepal and abroad. As per CARE report, net profit of 2126 companies analysed grew 39.7 per cent in 2017-18 against minus 11.3 per cent in 2016-17. It reflects in higher tax contribution.
And smaller firms with annual revenue of less than Rs 500 million were the worst affected, according to latest Economic Survey. The bigger companies did better. This now calls for a policy shift as the small and medium firms have remained the engine of growth, jobs and equitable distribution of wealth.
The I-T scrutinies also need to be reviewed. More people say that they are being harassed and that too has a financial cost. Such hidden costs are dampener for growth. State needs revenue but oppressing taxes, continuous rise in railway and transportation costs are impacting the ease of life.
An IMF report states that the disruption caused by cash shortages dampened consumer and business sentiments, leading to a decline in high-frequency consumption and production indicators, such as sales of two-wheelers and cement output, respectively. It also cost jobs.
The banking sector deposits grew exponentially. Banks were not prepared for it and managing such high deposits also has higher spendings. It has made the banks increase its charges and fees manifold and not pass on repo revision benefits to depositors to cover up their losses. Today people are moving away from public sector banks (PSB) to the private banks, who offer better interest rates. Indeed, the banking sector is yet to get back to its normal operations.
The expectation that “tax cheats” would not take unaccounted money to bank counters have fallen flat. Devious methods like paying salaries in advance, benami accounts have led to witch hunt. The I-T department has yet to tell how much was really black. Even Vice President Venkaiah Naidu has recently asked the I-T department to reveal the data of the two lakh who made high value deposits post note-ban. As per a statement in the Lok Sabha the I-T department spotted Rs 7961 crore black money till March 2017.
Is not paying taxes at atrocious rates – on average four months wages – make the money black? It calls for redefining the black money. An undesirable effect of non-cash is the creation of mammoth middle man in banks and financial institutions. The US, Europe, Australia and Japan are ruing it. The 2007 sub-prime US and European crisis was the result total bankisation of the society. People are being controlled. Do not we need to retrospect?
The note ban has also opened up the strength of the traditional economy that dwelt on trust without a third-party involvement. It needs to be revived to strengthen and fast pacing of economy. India’s greatest strength is its multi-tiered economy. It adds to resilience and is not a parallel economy. That is swadeshi and the nation has to imbibe it.—INFA