Politics drives move against black money–Economic Times–08.11.2017

On the first anniversary of demonetisation, it is unambiguously clear that the project has been a resounding political success. It sent out a clear message that the government is determined to clamp down on black money and is prepared to take unorthodox measures for the purpose. Since the government continues to celebrate the move, it follows that more steps are likely to expose black money, to validate demonetisation. The Prime Minister, in other words, was not indulging in campaign rhetoric when he told an election crowd in Himachal Pradesh that his government would now go after benami property, property held in the name of someone other than the actual owner. The exposés on accounts held in tax havens ties in conveniently with this narrative.

People were given a chance to take part in the great war against black money by standing in line in front of banks, offsetting the discomfort and the odd death while queueing up with the vicarious pleasure of being a part of penalising the illicit rich. The ruling party won the crucial state of Uttar Pradesh on the back of the goodwill that flowed from this move. But the RBI’s final figures show that the notes that did not come back into the banking system, a measure of the black money extinguished by denotification of Rs 500 andRs 1,000 bank notes, was just 0.1% of the 2016-17 GDP. The government’s own Economic Survey estimated lost output, as a result of demonetisation, to be 1% of GDP. Most black money is held as real estate, gold and other assets, not as cash. Even of the amount held as cash, most came back. But at a cost to the black money holder: they had to employ people, directly or indirectly, to deposit the money in banks. Thus, demonetisation did effect some redistribution of hoarded money.

Cash in circulation today is lower than a year ago, giving credence to the claim that India is moving to a less cash economy. But the real anti-black money move by the government is GST, whose proper implementation will bring transparency to corporate accounts, big and small. What remains is cleaning up political funding.

This piece appeared as an editorial opinion in the print edition of The Economic Times.

via Politics drives move against black money

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