Demonetisation is a major step to build a new economy
Black money remains a serious impediment to the development of the Indian economy. Nehruvian socialism, crony capitalism and unchecked corruption are among the major factors that have facilitated the growth of black economy over the years. As a result, few small but influential groups are reaping enormous benefits at the cost of the common people and the country.
Though the issue of tackling the menace of black money used to be discussed occasionally over the years, no serious attempt has been taken by the Government so far with full conviction. Besides, the size of the money have grown manifold during the recent periods. Apart from black money, there are fake currency notes in circulation feeding the terrorist, Naxal and other anti-national activities who are bent upon destroying the country.
There are varying estimates of black money by different agencies. A recent report by the Ambit Capital Research mentions that the size of the black economy for calendar year 2016 could be over Rs.30 lakh crores, accounting for 20 per cent of India’s GDP. An earlier report in 2013 by the National Institute of Public Finance and Policy appointed by the Government to estimate the black money in India and held overseas noted presented an alarming picture.
It noted that the black economy could be nearly three quarters of the size of India’s reported GDP. As for the black money in circulation is concerned, estimates based on different sources indicate that the cash in black could be as much as Rs.6.5 lakh crore, accounting for 38 per cent of the share of currency in circulation.
The reports of the Reserve Bank of India indicate that the circulation of Fake Indian Currency Notes (FICN) has been on the rise posing a grave threat to the security of our nation. The reports show that nearly six lakh notes were detected during 2014-15, from around 4.90 lakh notes during the previous year. The Financial Action Task Force report of 2013 noted that the Indian rupee was the ninth most counterfeit currency in terms of its value in the world, most of it printed in Pakistan.
The impact of black money and fake currency notes have far reaching influence on our nation than we imagine. Most of the population, who are honest in their dealings and especially those from the ordinary segments, suffer a lot in their day to day lives. The sufferings take place in diverse forms such as higher land prices, inflation, high interest rates, corruption, increasing capitation fee in educational institutions and terror attacks. All these factors seriously affect the lives of our people, who despite their best efforts are forced to face many difficulties.
It is in this connection that the announcement of our Hon’ble Prime Minister on Nov.8, 2016 making the high denomination notes lose their legal tender status assumes importance. It is estimated that there are around sixteen lakh crore worth of money in circulation in the country. Of this, Rs.500 and Rs.1000 notes are estimated to be around 86 per cent. The remaining money in circulation is in smaller denominations.
By withdrawing the higher denomination notes and allowing the exchange and deposit of genuine old currencies at one stroke, the Government has taken a major step to tackle the issue of black money and fake currency notes. This is by far the boldest step by any Government in Independent India.
The initial reports indicate that substantial sums of funds are reaching the banking channels on a daily basis at a faster rate, though the Government have given fifty days of time to the people to clean up their accounts. It is significant to note here that in the true Indian spirit our people have willing taken up on their shoulders few difficulties that they have to face during the transition period.
The results of demonetisation are being felt even at this initial stage, though there is a lot time to see the full impact. Those who have amassed huge cash through wrong means are all on the wrong foot. They might have to lose much of their loot, as they cannot prove their sources. This would act as a damper in future to the all those who want to engage in corrupt practices.
With the accumulation of funds in the banking system, it is expected that lending rates will decline in future. This would increase the economic activities, enabling the industrial and business community to get funds at lower rates. They have been continuously voicing their opinion for lower rates to compete at the international level.
This would particularly help the entrepreneurial community belonging to the MSME segments to borrow funds at lower rates. At present the major difficulty for the non-corporate sector is the lack of access to the low cost funds, which cripples their functioning. Hence this would be big boost for them.
It is an open secret that huge amounts of black money is diverted into certain sectors such as real estate. As a result the land prices have become very costly during the recent years. Hence the majority of the population cannot even imagine buying a piece of land to construct a house, especially in big cities. Experts note that henceforth there would be reduction in the prices of land.
Opportunities for keeping black money encourages corruption. As a result we are witnessing the huge levels of corruption prevailing across the country. Even the critical sectors that are expected to provide basic services to people such as education, health and infrastructure have become the major centres of corruption, leaving the majority sections at the mercy of God. Ordinary people are not in a position to enjoy the fruits of freedom, as there is corruption at different levels. The present step is expected to curtail corruption to a large extent.
Terrorist activities have already come down in the last few days. Normalcy is returning to Jammu & Kashmir after nearly four months of disturbances, including stone pelting. Reports say that Naxals seem to have suffered heavily as their stocks of money has lost their value.
Besides, the latest development has created an opportunity to the ordinary people and the informal sector to operate through the banking system. The operations of the Government through the banks have stopped corruption in their dealings with the public. Initiatives such as payment of wages under the rural employment scheme, provision of gas subsidies and payment of scholarships to students being directly transferred to the bank accounts of the beneficiaries have resulted in full payments without any leakage.
The present Government under the leadership of the Prime Minister has been taking series of steps from the beginning to unearth black money and curtail corruption. Beginning with the setting up of Special Investigation Team to get hold of black money immediately after the assumption of office and the opening of Jan Dhan accounts scheme for people without bank accounts to the latest agreement with the Swiss Government to share the details of black money holders in their banks, the Prime Minister has been taking continuous steps on these issues.
India is fast emerging as a powerful nation at the international level. One of the critical factors that hinder our development journey is the black money. It has to be severely dealt with if India is to progress for the development of all the sections of population. Against this background, the Prime Minister has taken a very significant step to curtail black money and we all have stand as one with him at this critical juncture.