The decision to demonetize the Rs500 and Rs1000 notes, which constitute 80 percent of the cash in circulation in the Indian economy, is a masterstroke, albeit not a new one. It had happened earlier, 40 years ago, in 1977. The demonetization is an attempt to clean up India-based black money and move to a cashless society. It’s a measure that most people had for a long time asked.
This is going to hit straight and right the citizens of India, living in India. It like cleaning up your house lock, stock and barrel. For once, the honest tax paying citizen – the one who is honest by choice and not be force – is happy. Maybe the prime minister promised to bring in the money stashed abroad. Maybe that hasn’t happened, but then charity begins at home and is welcome.
If you haven’t been straight, you can still deposit whatever money you have in the bank, declare it as your income of the year, pay tax on it, and come clean. You could I guess after that sleep well. I know this is not formally an amnesty scheme but it comes close to that. So be it.
If you can prove that the money you kept at home for whatever reason is your hard earned after-tax income, you don’t have to pay tax on it; whatever is the amount held. I don’t think you need to explain why you are holding on to it – daughter’s wedding, buying a house, blah, blah and blah – you just need to tell the source. If it is money that you have earned as a trader and kept aside for a later day to deposit (I don’t know why you would hold it that long) you just have to deposit it now.
Well, if it is unaccounted money you perhaps will have to face the music.
The best part of the whole thing is the extraordinary secrecy with which it has been executed. True, there are some who are finding their way out, but that will turn out to be a miniscule fraction. Yes, I know some will sell the dishonest will sell their currency at a discount, some will have it deposited with the help of proxies, but that’s a small price to pay. The accumulation of the dirt across forty years will now get cleaned in one stroke. New black money can sure be generated, but it will take its time.
The idea is to move to a cashless society, which would not just weed out corruption but will push people, to be honest as in pay taxes.
Scrapping the big-ticket notes is a great move and needs to be welcomed. What we must also realize is that not all black money is in cash. A lot of it has moved to other assets, and have also moved to other countries. It is that later black money which I believe is bigger and must be caught.
What however is a point of concern is that an Rs 2000 note is coming in. There seems to be precious little reason for doing so unless you believe that new black money that gets generated out of it will once every ten years be cleaned out by demonetization.
The faster we move to a cashless country, the better.