Mains Paper 3: Internal Security: Money Laundering
Once you are done reading this op-ed, you will be able to attempt the below.
How effective was demonetisation as a policy, in achieving its stated goals? Critically examine.
From UPSC perspective, the following things are important:
Prelims level: Not much
Mains level: Demonetisation implications
- Minister Narendra Modi had promised that the demonetisation pain would last only for 50 days, but would benefit the country enormously in the future.
- But RBI has admitted that almost 99 per cent of the Rs 15.44 lakh crore of the demonetised currency returned to its coffers
The proponents of demonetisation
- They portray the return of the notes as a success.
- They claim that those with black money were forced to deposit their illegal hoards in the banks and they can now be caught by the tax department and made to pay additional taxes and would expand the tax base.
- They argue that the idle black money is now in the banks and that would lead to efficiency because the cash-to-GDP ratio would decline.
- They believe there is a formalisation of the informal economy and that the economy is moving towards a less cash economy.
Arguments against demonetisation
- A large number of those who never generated any black money were put to tremendous hardship.
- They lost jobs and had to stand in queues for days to withdraw their own money.
- Trade and businesses suffered.
- People were forced to return to their villages because they lost jobs in the cities.
- Routine banking could not be done and the aged faced enormous hardship. I
- n contrast, the well-off never stood in queues because they had customer relations managers who helped them deposit and withdraw cash.
- Some of the money deposited may have been black, but it is hard to tell whether the currency was black or white
- Argument that those who deposited their black money will henceforth be in the tax net is incorrect. It is unclear how many new tax payers have been discovered.
- Black cash is less than 1 per cent of the black wealth, actual effect is far less than that because 99 per cent of that one per cent is back
- Credit off-take from banks is at a historic low because demand is short.
- More digitisation, less cash economy, expansion of tax base via more raids, closing down shell companies and catching benami property could have been implemented independent of demonetisation