Demonetization of high-valued currencies by the Central government has been the matter of debate in the Indian media till now and is expected to be so for at least another two weeks as the citizens struggle for exchanging the old notes. Every news channel has been reporting about the decision and its impact on black money on a whole. Well, will it really impact the big fish which has invested in the Swiss bank?. Can the government bring back the black money from foreign countries?. Who does the demonetization impact the most?.
No doubt, that the Union government’s decision to curb black money will be a game-changer and is expected to bring out black money from the non-tax payers. However, is it really the case?. Will the decision impact in any way to those who own an account in the Swiss bank?. Let us have a look. Big names, who are often suspected of keeping hidden black money does not necessarily store them in the form of liquid cash. Most of the time, they invest the money in physical assets like Gold, real estate or in purchasing other valuable articles and send the surplus amount to the Swiss bank in the form of foreign currency. The overall cash that a high-profile non-taxer-payer will possess will not exceed 10% of his total money in any circumstances and therefore, it is evident that most of the bigger personalities like politicians will be out of ‘the net of demonetization effect’.
Then whom will the RBI catch through the demonetization of currency notes?. Well, the answer is common man who never pays income tax!. Yes, you heard it right. When you look at the income tax slabs for men below 60 years of age, every individual whose source of income crosses Rs 2,50,000 is supposed to file 10% of his income as tax to the Income tax department of India. It is very likely that an average individual from an upper middle-class family earns more than Rs 2,50,000 in a single financial year but, refuses to file income returns due to various other reasons. Hence, this class of common men will be caught by the Indian government as ‘tax evaders’ when it goes through the accounts of the individuals who have exchanged the old currency through banks. Though it looks unfair for the common man, in the larger interest of the country, the move is expected to boost the Indian economy as the government expects at least additional 40% of income tax payers to the existing numbers, due to the demonetization drive.
Also, there are other positive outcomes for the Central government’s bold decision to demonetize Rs 500 and Rs 1000 notes.
Black money holders will be under the radar:
Official data from the Reserve Bank India shows that the concentration of Rs 500 and Rs 1000 notes are higher in the Indian market than Rs 100 and other smaller denomination currency notes. Hence, with the order to exchange Rs 500 and Rs 1000 notes through the banks, the government is actually increasing its surveillance on individuals to bring out tax-payers. As said, every transaction will now be tracked by the Union government to bring all the eligible citizens under the purview of the Income tax.
Nullifying the currency notes :
It is a known fact that several terrorist organizations and others, infuse fake currency into the Indian market to destabilize the Indian currency and its economy. According to the RBI data, fake currencies worth Rs 16.50 lakh crore has been circulating in India with most of them of high-valued denominations. It is impossible for the illiterate and the rural population to differentiate between a legitimate and a fake currency. Hence, the move to completely replace the old currency with security features-enhanced new currency notes will help the Indian economy immensely.
The move will also decrease inflation as the demonetization legally makes fake currency invalid. Therefore, sectors like real estate and others will now look to decrease their price slabs and thereby, bringing down the inflation numbers.
National Security will increase:
It has been a well-known fact that fake currency is being used by the terrorist organizations to lure people into carrying anti-national activities. With the demonetization of the currency, the terrorists will now have to do nothing but remain silent with the lack of funds. In addition, individuals who earn money through wrongdoings will be the worst hit as they will not have the option to convert the illegally earned money to legal money without inviting official crackdown from the government. Overall, the demonetization effect will increase the national security and will allow the government to target specific terrorist groups and their sleeper cells.
Increase in Cashless transactions:
India is a cash-rich economy and major transactions in the country are done made through cash mode. This was a major challenge for the Indian government when it wanted to track down the taxpayers. In addition, the government has to bear the huge costs of printing currency while monitoring the fake currency circulation at the same time. All these problems can be solved to a greater extent in one go if the Indian citizens prefer cashless transactions over cash transactions. This will also enable the government to keep an eye on the tax evaders as every data regarding money transactions will be available in the bank records. The Union government has actually pushed the public for cashless transactions by limiting the amount that one can withdraw from the ATMs and banks with effective from November 9, 2016.
Cons of demonetization:
- There will be an uneven traffic at the ATMs and banks to exchange old currency notes, causing inconvenience to general public.
- The majority of the rural population aren’t aware of the latest developments in India. They must be educated regarding the government’s decision by the gram panchayats and care should be taken to provide them with exchange facilities at nearby villages to avoid greater inconvenience.
- The government will have to spend huge amounts of money to print new currency notes and will face major hurdles in the initial two weeks as it looks to replace the old currency. A situation of confusion may develop among the public until the demand for new currency notes in the market has been fulfilled by the RBI.
- India is not yet ready for cashless transactions. The majority of its population is in rural India where the citizens do not have any knowledge about computer and internet banking. Forcing them to do online transactions by limiting cash withdrawals through bank and ATMs will only create anguish over the Central government.
- At the end, the move will successfully add new taxpayers to the Income tax department’s database but, will not be effective to bring out the big fishes.