Pics: Joshwa D'Souza
Daijiworld Media Network - Mangaluru (PMD)
Mangaluru, Nov 30: The decision to demonetise high denomination currency notes was risky amid opposition, but the central government has taken a bold step, said former general manager of Canara Bank K S Balachandra Rao, while adding that demonetisation alone will not be enough to curb black money and that the government needs to take other steps as well.
He was addressing a talk on 'Demonetisation - Pros and Cons', hosted by Mangalore Productivity Council, affiliated to the National Productivity Council, Delhi at SDM Law College here on Tuesday, November 29.
K S Balachandra Rao was the main speaker. Practicing chartered accountant, S S Nayak, presided over the talk. Additional commissioner of Income Tax Department, R S Siddappa, shared his inputs from the perspective of the IT department.
Balachandra Rao extensively outlined the demonetization scheme, its impact faced by the common man, the benefit to and intention of the government, and the implementation of the scheme in India of the yesteryears.
Journey of the note: Inception to demonetisation and remonetised state
"The currency note was an easy and smooth means of exchange as opposed to the earlier barter system. The present day currency note or bank note is authorized for issuance by the central bank, the RBI in India. These bank notes are given as legal sanctity by the government, a promise by the government, a sovereign guarantee, thus making it a legal-tender note. On November 8, the legal sanctity of the Rs 500 and Rs1000 notes was withdrawn," Balachandra said.
"It does not mean these notes are all useless. The government is not absolved of its liability to pay the holder the due value thereof. Demonetisation is taken as a last resort by the government, and hence there must be something clear in their minds. Chaos was expected; but announcement in advance would have ruined the whole process. Only a few people were involved in the process," he added.
Why Demonetisation became necessary
"All currency notes are white. It becomes black when it is not declared to the government," he said. "The black money may remain as cash, gold, real estate or investment. Black money breeds more black money as it becomes difficult to infuse it back into the system legitimately. Illegal businesses like hawala, drug, human trafficking are also fuelled. Thus, the amount of black money keeps increasing. Black money in India is estimated at about Rs 17 lac crore, and 86% of that, which is about 15 lac crores, is in Rs 500 and Rs 1,000 notes. By December 30, if Rs 15 lac crore does not come into the system, it means the residual amount may, by and large, be black,” he opined.
Demonetization in present and past
"Notes of Rs 1,000 and Rs 10,000 denominations were demonetized in India in 1946. The total value of that currency was Rs 143 crore, and Rs 9 crore was black, so it was not a very successful mission. In 1978, Janata Dal government demonetised the Rs 5,000 and Rs 10,000 notes. But, there was no published report by the government about the value recovered.
"This, in 2016, is the third event of demonetisation with an enormous magnitude. The decision was risky amid expected opposition. But the government took up the bold challenge. Cash is not the only way in which black money is found in the system. The government has to take other steps if it wants to bring out the black money. The Benami Transaction Act 1988 was recently amended in August by the NDA. One more thing that needs to be done is restriction of purchase of gold and real estate through DDs and cheques. The amount of black money to an extent can be assessed, but not counterfeit currency. But the time demonetisation took place, lots of subversive activities came down," he explained.
What's in it for government, public
"Politically, it would backfire, making the government unpopular. But as a positive, security threat by subversive elements reduces as counterfeit currency is made redundant. A minimum of 20% of the Rs 15 lac crore, that is, Rs 3 lac crore may not get deposited. This will be the liability of the RBI and the government of India, which will get extinguished. The government will be paid special dividend, which will be used for development schemes.
"The government may inquire about the source of the income and if unknown, it will be taxed by the government. The government has assured that the honest man will not be harassed. Today we are living in a digital era. This move helps digitise India and make it cash-free. A country like Kenya is almost cashless, so is Sweden. Thus, India, a hub of IT can do it. One of the main objectives of the government is not to destroy money but collect taxes on all known sources of income. The government has given another chance to the people to come clean. This is for cash deposits and not any other assets. If you declare your cash before December 30, you pay 50% tax on unaccounted deposits, and 25% of the amount goes into Pradhan Mantri Gharib Kalyan Yojana, which will be used for the betterment of poor. After December 30, you will be taxed up to 85% on undisclosed cash.
"Though the GDP may come down in the next quarter, the prices of essential commodities are also expected to come down, and real estate prices will come down by 20-30% as forecasted.
"Today, the high denomination notes are around 86%, the objective of the government is to bring it down to 40%. For individuals, it is time to be tech-savvy and use plastic money," he added.
R S Siddappaji briefed the gathering on the Income tax Act amendment, and pointed out the recent shift from VDIS to IDS scheme.
He also mentioned about the radar of the IT department, where post November 8, deposits of over Rs 50,000 in Jan Dhan accounts, and Rs 2.5 lac in other accounts, invites the attention of the IT department.
Regarding the use of credit cards for transaction, he pointed out to two impediments, first, the operational part is unknown, commonly, which is why it is uneasy to use credit cards. Secondly, in some places it is difficult to find an ATM.
He concluded saying that the overall intention of demonetisation is good and is working.
CA S S Nayak lauded the efforts of the bank employees who have been have been working long hours for over 15 days, without ceasing. He also pointed out that "NRIs can deposit their money with the RBI after the December 31. One needs to explain the source of the income. The present IDS scheme is successful in undivided Dakshina Kannada and Karwar areas, and I appreciate Siddappaji for the implementation. Now there is no need to panic about the demonetisation scheme. One should be very free and frank."
President of Mangalore Productivity Council, U Rama Rao hosted the programme. Treasurer, Shobha Ravindra Rao introduced the speakers. Secretary, P Balakrishna Saralya proposed the vote of thanks.
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