On 8th November, 2016 at 8.00 p.m. the Prime Minister, Shri Narendra Modi declared that currency notes of denomination Rs.500/- and Rs.1000/- ceased to be the legal tender. Since then lots of criticism have surfaced both for and against that action of the Prime Minister. Both the Houses of Parliament could not function during winter session due to pandemonium created by the opposition parties over the issue of demonetisation. There were even demands from soma quarters for call back of the decision.
Criticisms notwithstanding, it does not require any certification that Black Money has been playing havoc in the economy. Similarly, the issues of Fake Currency and Terrorist Funding have been ailing the country for the last several years. It can be safely concluded that all the aforesaid issues could be controlled substantially with one tool i.e., demonetisation.
I am not much interested to discuss the pros and cons of demonetisation as I am going to dwell upon the lessons we should, rather we must learn so as to avoid (i) the need of further demonetisation in future, (ii) the pains we had to face post demonetisation and most importantly, (iii) the creation of black money.
Cash Less rather Less Cash Economy: The Govt. of India is pushing for digitalisation with the sole intention of making the economy Cash Less which in turn will bring transparency and reduce corruption in the economy. On the other hand, RBI has been advocating for Less Cash economy for quite some time. To that end, every effort is being made to go whole hog for increasing digitalisation. Having said that, I really fail to understand the rationale for introduction of new currency note of Rs. 2000/- denomination. Do we really need this currency note of Rs. 2000/-? Are we not helping in creation of further black money? I am of the view that we should not have gone for currency notes of Rs. 2000/- as these are illiquid in nature.
My suggestions as regards issuance of currency notes are as under:
- Maximum value of currency note should be Rs. 500/-.
- We can introduce currency notes of Rs. 200/- and / or Rs. 300/-.
- The minimum value of paper currency should be Rs. 20/- and below that there should be coins only.
Digitalisation of Economy: Nothing can be achieved overnight but everything is effort elastic. It is apparent that in order to reduce dependence on cash, we have to make all out efforts for digitisation. Though the efforts so far were lackadaisical but with the focused attention given by the Govt. of India, more particularly, the Prime Minister of India, things have started moving at a fast pace. As it is a mammoth task, all concerned must do their bit to facilitate the process. While awareness on the part of users and ensuring robust security by the technology service providers are of paramount importance for quick propagation of electronic mode of transactions, availability of the facility is a must for successful implementation. It is observed that even if the users are ready for digital transactions, the facility available proves to be a stumbling block. I am, therefore, of the view that we should ramp up the facility of accepting credits by motivating / incentivising the shopkeepers/ institutions/ agencies. Once that is done, they will act as enablers / facilitators / motivators for digital transactions. To that end, my suggestions are, as under:
- Rental (wherever applicable) has to be reduced to a bare minimum, say Rs.100/- per month.
- Interchange / MDR has to be brought down to Re.0.25 to 0.30 per Rs. 100/- for Debit / Cash / Prepaid Cards.
- Tax concession has to be given to sellers / shopkeepers who can route through minimum 50% of their monthly sales through digital mode.
- Digital transactions have to be incentivised (This has already been started by the Govt. of India.)
- Cash transactions have to be dis – incentivised.
Steps to Reduce Black Money:
Creation of Black Money follows Newton’s First Law of Motion. So stopping its creation is possible only with huge external efforts. To be frank, it may not be possible to stop creation of black money altogether but we can certainly reduce its volume to a substantial extent in the economy. To that end, my suggestions are as under:
- All cash transactions beyond a certain amount (Say, Rs. 5000/- in metro / urban and Rs. 10000/- in semi-urban / rural areas) mandatorily accompany PAN.
- Direct Tax rates have to be reduced drastically so that the people’s inclination to pay tax gets a huge boost.
- Indirect Tax rates have to be brought down to such a level that all the corporates will be tempted to pay taxes without any effort to evade.
- One area which absorbs lots of black money is realty sector viz. land and building. While the registration has to be on the basis of market value of the property, market value has to be updated on an ongoing basis and pragmatic. But the charges for registration and stamp duty have to be fixed at a reasonable level to ensure 100% compliance.
- Law must be very stringent while dealing with black money related cases and exemplary punishment has to be given with a view to ensuring that people do not dare to resort to this practice.
I am confident that things will be much better in the days to come as the Government is fully focused on this great initiative cleansing the economy.
I joined SBI as a Probationary Officer in 1981. Since then, I have worked in various capacities as Branch Manager, Regional Manager and Deputy General Manager at different places. My specialised areas are Credit and General Banking.
I also was Chairperson of Reserve Bank of India Working Group on Evaluation of Feasibility of Aadhaar based Biometric Authentication as Additional factor of Authentication for card present transactions and related issues.
Latest posts by Pulak Kumar Sinha (see all)
- Rat Race: The race for marks over real education - January 23, 2018
- My Visits to Nanihal: Grandpa’s Lesson of a Lifetime - December 25, 2017
- ‘Dalit’ and Indian Politics - October 22, 2017