Day 54 – Q 5.Could demonetisation make a dent to black money in India? Critically examine.

5. Could demonetisation make a dent to black money in India? Critically examine. 

क्या विमुद्रीकरण भारत में काले धन को ख़त्म कर सका? समालोचनात्मक जांच करें।

Synopsis:

On 8 November 2016, the Government of India announced the demonetisation of all Rs.500 and Rs.1000 banknotes of the Mahatma Gandhi Series. The government claimed that the action would curtail the shadow economy and crack down on the use of illicit and counterfeit cash to fund illegal activity and terrorism.

According to the Reserve Bank of India’s annual report for 2017-18, 99.3% of the demonetised notes have been returned to the central bank. One of the primary aims of demonetisation is to extinguishing hoards of ill-gotten currency notes, by seeing the data we can say that it has failed to do so.

Does Demonetization make a dent to flow of black money:

The total reduction in black money was much smaller than what might have been envisaged. To the extent that it was possible to exchange money legally, individuals did so. After that it was done illegally.

• Those who could not exchange money, they legally found money changers. Individuals with bank accounts, including Jan Dhan accounts, and companies showing cash accrual from sales came into business.
• Introduction of 2k denomination notes is another criticism, when we have demonetised 1000 and 500 rupee notes, logically to curb the black money the denomination should be smaller than what we have demonetised.
• The number of counterfeit notes or fake notes detected during the exercise is only minuscule, just about 7.6 lakh pieces, as compared with 6.3 lakh pieces in the year ahead.
• Some of the studies suggest that demonetisation policy, which likely wiped at least 1% from the country’s GDP and cost at least 1.5m jobs, failed to wipe significant hordes of unaccounted wealth from the Indian economy.

If we see from the above reasons it is hard to say it has tackled the flowing of black money at large.

However, some of the benefits of demonetisation as per the government estimates are as follows:

Tax on black money: Demonetization offered three options for black money holders:

• Declare their income, deposit it and pay tax rate with penalty.
• Continue to hide and suffer 100% tax rate.
• Launder their money.

Tax compliance:

• Demonetization has shown state’s resolve to crack down on black money.
• Social condemnation: Since this action has commanded support amongst the population, demonetisation shows that black money will no longer be tolerated by the wider public.

Impact on Real estate sector:

• Demonetization can have profound impact on real estate prices as black money was used evade taxes on property sale and have resulted into inflated prices.

Conclusion:

Although there are some hiccups in the implementation and miscalculations regarding demonetisation can be seen. But if we see at larger picture, on positive side there are some benefits like Awareness against black money and consciousness about legal and punitive measures is an intangible positive effect of this demonetisation. It will change the mind-set of the people to keep away from black income. This shakeup of Indian society will be a big outcome though it may not be measurable.

Best Answer: No best answer.