A bank staff member counts Indian 500 rupee notes to give to customers, Nov. 24, in the wake of the demonetization of old 500 and 1000 rupee notes in Mumbai. (Indranil Mukherjee/AFP/Getty Images)
On the eve of November 8, in an unscheduled live televised address to the nation, India’s Prime Minister, Narendra Modi announced the banning of high value currencies — Rs. 500 and Rs.1,000 notes, effective from Nov. 9, and their replacement with new Rs. 500 and Rs.2,000 notes. Terming it a “surgical strike” against corruption, Modi explained that this would be his first move to clean out black or untaxed money, and fake currency from Asia’s third largest economy. Shortly afterwards the Reserve Bank of India laid bare the essentials of the initiative. This sudden move by Indian Prime Minister Modi has had a ripple effect and every Indian, whether in India or abroad, has been touched in one way or the other, writes Priyanka Bhardwaj.
The demonetization move by the Indian government would reduce the role of black money and will lead the country towards a digital economy but moving to a cashless system will take some time, a leading Silicon Valley-based Indian American entrepreneur has said, writes Lalit K. Jha.
Amidst din and without debate, the Lok Sabha passed within minutes a major bill, Nov. 29, that provides a window to legalize black money post-demonetization and a tax on that amount, triggering a controversy with the Opposition calling it a “black day.”
There is a lot of confusion and worry amongst the Non-resident Indians living here as GOPIO outlines. Even the San Francisco Indian Consulate is mute, choosing to not respond to Siliconeer queries in this respect. – @Siliconeer #Siliconeer #India #Demonetisation #Demonetization #NaMo #NarendraModi @NaMo @Narendramodi #IndiaInc #TiESV #TheIndusEntrepreneur #VenkShukla #IndianCurrency
On the eve of November 8, in an unscheduled live televised address to the nation, India’s Prime Minister, Narendra Modi announced the banning of high value currencies — Rs. 500 and Rs. 1,000 notes, effective from Nov. 9, and their replacement with new Rs. 500 and Rs. 2,000 notes.
Terming it a “surgical strike” against corruption, Modi explained that this would be his first move to clean out black or untaxed money, and fake currency from Asia’s third largest economy.
Shortly afterwards the Reserve Bank of India laid bare the essentials of the initiative. The last date for exchange of invalid Indian currency notes was November 24 and for deposits it is December 30.
Newly appointed RBI Governor, Urijit Patel announced the primary impulse of the ban which is to nullify all fake notes as these had been printed by Pakistan to fund terror activities in Kashmir, thereby pushing up its supply, by 40%, and that of Rs. 500 and Rs. 1,000 notes by 76% and 109% respectively, between 2011 and 2016.
However, the sudden scrapping of 86% of total Rs. 17,770 billion notes in circulation dealt a big blow to the common citizenry who was left with no or measly amount of cash.
Serpentine queues lined outside banks and post offices to replace their invalid legal tenders.
Betraying Finance Ministry’s lack of any contingency plan to minimize the shocks of demonetization, were repeated revisions in exchange limits that started with Rs. 4,000, then raised to Rs. 4,500 and again lowered to Rs. 2,500.
The government’s claims that minting of new notes was initiated 6 months in advance meant little as banks felt the acute paucity of smaller denominations.
Even the arrival of new notes and recalibration of cash vending machines were too late.
To ease burden, minor relaxations for wedding couples and farmers over withdrawal limits, were made, and places where older currency would remain valid were repeatedly advertised, such as at gas stations, metro transport and railway ticket counters, hospitals, schools, national highways, civic bodies, and government owned grocery, vegetables and milk booths.
The shoddy implementation of the drive that resulted in unintended difficulties to the common people tempered their admiration of Modi’s initiative.
Probably the few advisors privy to Modi’s idea underestimated the high degree of informality in country’s output, in the nature of milk sellers, small truck operators, general grocery stores and road side dhabas (eateries), and lowest ends of supply chains that deal with cash and all of which is not black.
If the smaller fish were caught offguards there are countless others who figured out ways around demonetization.
Reports suggest conversion of black cash into legitimate tenders in lieu of a certain commission or by directing it to North Eastern states that enjoy income tax exemption or investment in gold, indicated by the steep hike in prices of gold and silver, or in high value travel bookings, to be canceled when new denominations glut the market.
Given the fact that just about 6% of the black money is stored in cash and the rest find way in bullion, jewelry and real estate, the jury is still out on if demonetization has been a successful drive and the true nature of its impact on economy.
Seeing a window of opportunity a new app BookMyChotu that promises errand boys for Rs. 90 an hour to stand in lines has popped up and payment apps such as PayTm and Freecharge.in have become quite popular.
But for the very poor who comprise 90% of the workforce, work without job contracts and mostly do not own bank accounts the demonetization ban has meant a slashing of up to 60% of their incomes.
As their work decreases with each passing day, and debit and credit limits with their patrons get exhausted they are leaving the capital for their native places.
Every day the number of workers await Uttar Pradesh and Bihar-bound Farraka Express and Brahmaputra Mail at the Old Delhi Railway stations and Sish Ganj Gurdwara (Sikh temple) authorities claim that there has been a dramatic rise in daily wagers partaking langar (free community food) since Nov. 9.
These 600 million strong sections earn its daily wage in cash, and most definitely cannot afford smartphones, thus ruling out any chance for complete digitization.
The possession of the high value Rs. 2,000 note too does not make matters easy and market transactions have squeezed, with downfall in consumption, the knockdown on other industries has created a negative wealth cycle.
If on one hand there are innocent housewives bemoaning the loss of their secret cash kitty, there is the data about major industrial groups losing a whopping Rs. 9 billion.
One sector that has given mixed feelings to various categories is the intended crash in the residential property market by 40% in coming months.
The not so gloomy impacts of the ban have been a dramatic fall in violent protests in Kashmir and Maoist affected areas, drugs supply and smuggling, and whopping collections at temples, power exchanges and civic bodies.
Attorney General, Mukul Rohatgi informed the Supreme Court that as cash transactions at 12% far exceeded the limits of 4% for any large economy, demonetization was paramount and has already yielded more than Rs. 6,000 billion worth of deposits in banks as of Nov. 24.
Not entirely convinced, the court has allowed petitioners to challenge the drive in various High Courts.
Passionate debates and adjournments are ruling the winter session of the Parliament and a united opposition called for a “Bharat Bandh” (nationwide shut down), Nov. 28.
The drives against black money is not a novel idea as in 1978 the Morarji Desai government had first scrapped the Rs. 1, 000 note, albeit in short supply and in times of lower inflation, and Modi’s earlier voluntary disclosure program had netted $19 billion out of $400 billion-$1 trillion, reportedly in circulation or overseas banks.
The social media that gave a big initial positive applause to Modi’s ban is now is heavily divided on the consequences of demonetization on economy as economists warn of a slide of GDP by 2%.
According to one of an Indian mythological tale, Durga, the warrior manifestation of Goddess Adishakti, destroyed the buffalo demon Mahishasur with the help of many celestial weapons.
Similarly to kill the self-replicating demon of corruption, Modi needs to ensure that demonetization is part of the entire package of drives that includes; electoral reforms, transparent allocation of natural resources, complete recall of unaccounted wealth hoarded in tax havens, investigations in Panama Papers, lowering or elimination of income tax, nullification of participatory notes, and uprooting the menace of “speed money.”
— Priyanka Bhardwaj
DEMONETIZATION WILL MOVE INDIA TOWARDS DIGITAL ECONOMY
This is a massive step (towards fighting blackmoney and digital economy). The foundation of which was laid by Aadhar, Jan Dhan Yojana and direct benefit transfer,” Venkatesh Shukla, a venture capitalist and president of TiE Silicon Valley.
“Those are the foundation that has already been laid. And universal payment interface is another brilliant that the government of India is working on,” Shukla told PTI.
“I think, the move to cashless economy can’t come soon to India. It is unfortunate that people are going through so much of a pain. But there is absolute no doubt that this is the right direction to go.
“The sooner the economy moves to a digital economy there will be less wastage, more productivity, more evolution and less of a black economy,” Shukla said.
“It would take a while, but infrastructure is in place,” he said in response to a question, adding Indian American entrepreneurs are highly impressed by this move of the government.
“I have not run into a single person who criticizes this.
We are overwhelmingly in favor of this,” he said.
“What is not to like about this,” he questioned when asked about criticism to the demonetization plan of the Indian Government.
“I am not the one who is suffering and I am not on the street (for changing/depositing money). But if you look at it from a strategic perspective… people who are outside India had complaint over the past 70 years that people just did not had the political will to do those things in India. Here comes a politician who first recognises what is the right thing to do and has the courage of conviction to pull it off,” he said.
“His focus on startups as engine of job growth, unfortunately for India is 70 years late. But at least he started the process. I wish the first prime minster of India had focused on entrepreneurs not with suspicion and distrust, but with confidence and trust,” Shukla said.
The head of the Silicon Valley chapter of TiE said that “this incremental trend putting disincentive to the cash economy is the right thing to do.”
— Lalit K. Jha
LOK SABHA PASSES BILL TO TAX BLACK MONEY POST-DEMONETIZATION
Marking transaction of the first legislative business in the two-week-old Winter Session, the Taxation Laws (2nd Amendment) Bill, 2016, was passed by the Lok Sabha after days of total washout due to paralysis on the demonetization issue.
With the Opposition continuing to disrupt proceedings, the government suddenly brought the bill under the revised list of business showing its eagerness to get it passed immediately.
Even as the slogan-shouting by Opposition members continued, Finance Minister Arun Jaitley said the bill will give means to the Government of India to run schemes like Garib Kalyan Kosh.
“I urge the House to accept the amendments,” he said while moving the bill for consideration and passing.
Immediately, Speaker Sumitra Mahajan declared, “There will be no discussion.” However, later she lamented that an important bill like this was being discussed without any discussion.
Jaitley said the bill was brought after it came to the government’s notice that some people were trying to illegally exchange the demonetized Rs. 1,000 and Rs. 500 currency notes.
He said as per the amendment proposed, those caught illegally converting money will have to cough up 60% tax plus penalties, which will come to 85%.
Those who disclose black money to banks will have to pay 50% as tax, including surcharge and penalty. Of the remaining 50%, while they will get back 25% immediately, the rest 25% will be returned after 4 years.
Some amendments moved by opposition members were rejected as those required approval of the President, which could not be obtained.
After the passage of the bill, the opposition termed as “black day” in Lok Sabha the passage of taxation bill amidst din without debate and accused the government of being “undemocratic and dictatorial.
The government, however, blamed the opposition for not participating in the debate and said it was “tragic” that the Bill had to be passed in the din.
It asserted that the measure had to be passed for the “welfare of the poor and country” and cannot wait for those who are unable to “digest” the action against black money and corruption.
GOV’T SAYS TAX MEASURE CAN’T WAIT
The bill proposes to levy a total tax, penalty and surcharge of 50% on the amount deposited post demonetization while higher taxes and stiffer penalty of up to 85% await those who don’t disclose but are caught.
The proposed law also provides for black money declarants to mandatorily deposit 25% of the disclosed amount in anti-poverty scheme without interest and a four-year lock-in period.
Those who choose to declare their ill-gotten wealth stashed till now in banned Rs. 500 and Rs. 1,000 notes under the Pradhan Mantri Grabi Kalyan Yojana 2016, will have to pay a tax at the rate of 30% of the undisclosed income, the new bill proposes.
Additionally, a 10% penalty will be levied on the undisclosed income and surcharge called PMGK Cess at the rate of 33% of tax (33% of 30 percent).
Further, the declarants have to deposit 25% of the undisclosed income in a scheme to be notified by the government in consultation with the Reserve Bank of India.
The money from the scheme would be used for projects in irrigation, housing, toilets, infrastructure, primary education, primary health and livelihood so that there is justice and equality, said the Statement of Objects and Reasons of the Bill.
For those who continue to hold onto undisclosed cash and are caught, existing provisions of the Income Tax law will be amended to provide for a flat 60% tax plus a surcharge of 25% of tax (15 percent), which will amount a levy of 75 per cent.
Besides, if the assessing officer decides he can charge a 10% penalty in addition to the 75% tax.
GOPIO EXPRESSES CONCERNS OF NRIs
In a letter written by GOPIO president Niraj Baxi to India’s Finance Minister Arun Jaitley, it has expressed its support on Government of India’s desire to curb black money and terrorist funding. However, GOPIO conveyed its concerns on behalf of the NRI community.
Since the monetization was announced by Prime Minister Narendra Modi, GOPIO received a large number of calls, emails and requests from the NRIs living abroad who are very concerned with actions taken by the Indian Government in regards to the withdrawal of Rs. 500 and Rs. 1,000 denomination notes.
Some NRIs/PIOs have leftover cash from their previous visits to India, while others have used currency exchanges and banks to obtain the rupees abroad for use on their future trip to India. Many NRIs/PIOs have kept these notes for a while so as to use them on their return to India in the future. Some NRIs/PIOs have used less time consuming means of obtaining currencies from online money exchanges to take back to India.
As per India Government’s recent announcement, the NRI/PIOs cannot deposit these notes in their foreign banks (as they are refusing to accept them); do not have bank accounts in India to deposit and even if they do they cannot travel to deposit the notes and cannot exchange the notes as foreign banks and exchange outlets are refusing to accept these notes.
GOPIO has requested the Indian Government to extend the cut-off date by six months, as many cannot return to India by the end of December, 2016; offer PIOs with business and other income in India be similar deals as for residents (deposit up to Rs. 250,000.00); assist the PIOs living abroad by providing an avenue to cash or exchange the Rs. 500 and Rs. 1,000 denomination notes held by them for traveling to India and, increase the limit for exchange to Rs. 25,000 when they arrive at the airports.