Conclusion

The demonetization as recommended would also, help in the controlling of the drug trade, Human trafficking, ‘Hawala’ transactions and other black money and illegal operations and will also, improve tax compliance and collections. It would also, make it more difficult for money to be taken out of the Country as it would be needed here itself by the transactor. Of course, a more equitable tax regime would greatly help (See “Equity in Taxation & Comments on G.S.T and I.T”).

Afterword

This article is mostly as written in 2011, well before Demonetization on 08 Nov 2016 and the introduction of the Goods and Services Tax system thereafter.

It is today learnt that Counterfeiting of Indian Currency was made easy for Pakistan due to the then Indian Government’s decision to buy the Printing machines and Paper and Ink from common and suspect sources.

Demonetization was ordered on 8th November 2016, for all Rs.500/- and Rs. 1000/- currency notes. The expectation that Pakistan was planning to move much counterfeit currency into India to activate its many terrorist sleeping cells, as a response to our ‘surgical strike’ after the URI incident made the Government to implement the Demonetization earlier than planned for and even as they were not fully ready to properly implement it. The threat of increasing terror incidents demanded immediate action. Many of the points made in the article above were clearly addressed.

Demonetization is a welcome step and even though it did result in difficulties to the micro and small businesses and other enterprises that till then functioned in a cash economy. However, even such affected people stood by the Government and were openly in support of what they felt was a long delayed but right move and they were willing to accept the pain of it as it was recognized by them as being for the good of the country. It has also, been praised by many international institutions and many economists.

Of course, the Opposition went hammer and tongs against the move, which obviously drastically affected their many wrong doings.

Also, too much has been made of the long queues and the hardships and even deaths alleged to have been caused by the queues. It is definitely sad that some elderly did die, but perhaps we need to investigate their prior health condition and whether such people were really standing in queue for themselves or were being paid to do so by and for others.

Mr. Satyavartha, the Nobel Laureate, noted that the sudden cut off of the cash flow greatly reduced, and in many cases put a stop for months, to child and sex trafficking. In addition, it stopped terror funding and stone pelting. Of course it is always difficult, if not impossible, to prove a negative. A lot of the cash deposited was counterfeit, but it was not always possible to identify it and adjust for it. However, the process of exchange of currency not only brought much of the unaccounted cash in the system into the formal system but also, a lot of such counterfeit currency into the official system thus regularizing it as a one-time event.

Demonetization also, brought a lot of small traders, who till then were part of the cash economy, into the formal economy and thus into the tax net. GST also, further compelled them to do so. Jan Dhan Bank account is another step in the right direction. Of course this is not the end of the story. The Rs.2000/- and even Rs. 500 currency notes need to be withdrawn. The ‘RuPay’ debit and credit cards and the Unified Payments Interface (UPI) system and other such mobile and non-cash payment systems need to be greatly encouraged.

Unaccounted and Counterfeit money encourages the ‘Black’ economy. India definitely needs to meet the challenge of such a cash economy; necessary actions are still to be undertaken. The Aadhaar linked ‘Jan Dhan’ bank accounts and the tax system needs to be drastically re-organized and reformed. Doing away with Income tax and greatly simplifying the GST will have even greater beneficial effects. (See Equity in Taxation & Comments on I.T. & G.S.T.)

Unaccounted and Counterfeit money encourages the ‘Black’ economy. India definitely needs to meet the challenge of such a cash economy; necessary actions are still to be undertaken.

Demonetization was a one-time response to black money and counterfeit currency. Counterfeit currency is once again flowing into our country, this time even from Malaysia and Saudi Arabia. Reduction of cash in the economy and regular revision of the design of currency notes and having a comprehensive, equitable and reasonable tax regime is the long-term solution.

Perhaps we should do what even Indonesia, an Islamic country, has done, in an effort to stabilize and protect the value of their currency, by putting the image of Lord Ganesha on their currency notes, which seems to have worked and the practice is still continued. We too should consider putting Lord Ganesha on our Rs. 200/- currency notes and Devi Lakshmi on Rs. 100 /-and other notes, for a similar benefits. We too should consider putting the images of Lord Ganesha and Devi Maha Lakshmi on our new currency notes for similar benefits and even consider re- denomination of our currency by dropping two zeros from our present currency to make it more effective and meaningful. Then the new one Paisa would be the equivalent of todays one rupee and the currency become more simplified and practical. Our solid economic growth, low inflation, political security and social stability makes this the right time for such a decision. Russia had dropped 3 zeros in 1998.

JAI BHARATH! JAI HIND!

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