Prof R Vaidyanathan, who teaches Finance and Control at the Indian Institute of Management, Bengalore (IIMB), has been a keen advocate of demonetisation of Rs. 500 and Rs. 1000 notes and is currently writing a book, “Black Money, Tax Havens and India’s wealth abroad.” Debating the issue of black money threadbare, he offers suggestions to curb black money both in India and abroad
you will observe that there has been a deliberate skew towards having higher number of currency notes of denominations Rs. 500 and Rs. 1000.This has grown from 52% to 70% to 85% over the past 10 years or so.
At the same time, there has been a deliberate reduction in Rs. 5, Rs. 10 and Rs. 50 notes. This has been done to suit the ATM manufacturer or to create black money.
But a country like India requires more notes of denomination Rs. 5, Rs. 10 and Rs. 100. Small businesses run on these notes. Even before denomination, many people found it difficult to get notes of Rs. 10.
The earlier UPA and RBI regime is responsible for this. That is why there is such a hugemess. This is a terrible situation.
What is actually happening is that with 85% of the notes being in the denomination of Rs. 500 and Rs. 1000, it is actually the remaining 15% that sustains the economy! How can it sustain 100% of the economy? But it actually does.
In most developed countries, it is the smaller denominations that are more in number. In the USA, you can exchange your dollar for coinsat a cash vending machine. Coins are used at many places. For example, at laundromats, you must use coins for a wash of clothes.
We in India should also have cash vending machines. Every chaiwala should have this. As I said, our economy is made up of 80% of these small fellows.
Coming to another point, coming up with Rs. 2000 notes is bizarre. What is the point, really? After all, anyone who can handle Rs. 2000 notes can gov use credit and debit cards and Paytm and the like. So, why have Rs. 2000 notes? Is there pressure from intended black money stashers? The whole purpose of having demonetisation will be defeated.
Carrying Rs. 500 and Rs. 1000 notes and transporting them is easy. During the Tamil Nadu elections, the Election Commission seized Rs. 100 crores made up of these notes.
That’s why I suggest having only Rs. 100 and may be Rs. 500 notes. I think having Rs. 100 notes is enough, Rs. 500 -OK, chalta hai.
Another point is that we can’t run the economy for the convenience of the ATM manufacturers.The machines must be around for the convenience of the common man.
I think the demonetisation move is good. But the government should not do a U-turn. That will make it lose its credibility.
The real estate sector has already come down by 30% in the first few days. In the NCR and Gurgaon,what was selling for 100 has come down to 70% already. This will be seen in other cities like Bangalore, too.
There will be some amount of reduction in the GDP. That’s because 15% of the cash is sustaining 100% of the economy.
There will be a price reduction which will benefit the common man.
Borrowing will be in white. A woman vegetable seller will be able to borrow in white at 12% per month rather than what she was doing sofar-borrowing at 4% per day. This will benefit the customer.
This is more of an urban phenomenon, not rural.A lot of people are getting the help of their cooks, drivers and dog-walkers to exchange their black money by giving them incentives.
A college owner in Chennai has promised each of his students a motorcycle if they exchange his black money for him. If a motor cycle costs Rs. 60,000 and the owner asks each of his students to exchange Rs. 2 lakhs for him, he still saves Rs. 1,40,000. If a hundred students exchange Rs. 2 lakhs each, the owner makes about Rs. 2 crores. It’s a win-win situation for both!
But beyond a point, say Rs. 5000 to 6000 crores, black money hoarders can’t do anything. That’s why most politicians are so upset. That is why they are willing to join hands and align now with their sworn enemies of the past against demonetisation.
The government can pass a law or an ordinance saying that each individual can hold only Rs .10 lakh rupees in cash. If he has to hold more than that, he must get permission to do that from his banker. Holding more than Rs. 10 lakh in cash perindividual should be made a crime.
In addition, black money should be tackledon a war footing. My suggestion is that the gov use ernment should pass a law saying that all the black money that is parked abroad belongs to the government. In case a person needs to hold money for trade purposes, he should get permission from the RBI to do so. Today, we have to still deal with these on a case-to-case basis.
Also, there is a lot of jewellery, gold, rubies, diamonds, etc., placed in lockers abroad belonging to the rich-like, for instance, Maharaj as. These have been there for 30-40 years. A law should be passed by the government to say that even these belong to the country.
There are statues made in India out of different metals that have been and are then displayed in museums in other countries. Get them all back with the help of a law that says Indian wealth abroad belongs to India.
“Black money should be tackled on a war footing. My suggestion is that the government should pass a law saying that all the black money that is parked abroad belongs to the government. In case a person needs to hold money for trade purposes, he should get permission from the RBI to do so”
What I firmly believe is that domestic black money spells ‘no confidence’ with the government. It is a crime, but in a sense, it is used for productive purposes to some extent. But foreign black money denotes ‘no confidence’ with the country, and amounts to treason. Also, it is useful for nothing, it is idle. It only helps foreigners, as their banks use it for their benefit.
When we take action on all the steps mentioned above and bring all the black money back to India, the story will be complete.
By Geetha Rao
