Well, if there’s one topic which has been continuously reverberated in the minds of people starting from various economists till the easy going social network user in the past 20 days. Yes. You guessed it right. It is the GoI’s announcement that the use of all INR 500 and INR 1000 banknotes of the Mahatma Gandhi Series would be invalid.
Since the announcement was made, there are multiple layers of views pouring in regarding this topic and this write up is an another addition to that category. The pros and cons of the decision has already been dusted to ground in all social networking forums, Television debates, interviews and so on and there’s nothing new flavor to be added to it except to cite a few points to it.
The announcement aims to stop or reduce the counterfeited currency bank notes as well as to bring down the black money in the country. While the motive to do so is unanimously appreciated, it has received criticism for its procedural implementation.
As per the circulated data, the total value of notes in circulation as of March 2016 was Rs 16.42 lakh crores, of which around Rs 14 lakh crores (86%) is said to be in the form of INR 500 and INR 1000 notes. Out of this, Rs 8.10 lakh crores is said to have been deposited in the banks till November 27, leaving the balance amount un-deposited. While there’s still a month long for the deadlock time, the deposits is said to increase consistently as the cut-off date nears.
Also, in order to make the black money holders to come forward inside the approached system, a post Income Declaration Scheme (IDS) called “Pradhan Mantri Garib Kalyan Yojana” was introduced by the Government. The scheme is similar to as that of the earlier announced IDS except that the tax rate was kept higher at 50% and also a quarter of the deposits are subjected to a lock in period of 4 years. While the level of response for this scheme will be known only after the closure period, it will definitely friend zones those who are under a threat to disclose their cash holdings in normal banking system.
The lowering of Rupee value and estimated GDP growth forecasts are believed to be only in the short run and the actual position in the long run will only depend on the success of this Demonetisation scheme. Often, people tend to think how the advantage of this scheme is going to be derived and it’s simple. You can notice in every currency note that “I PROMISE TO PAY THE BEARER OF THIS NOTE…” which is signed by the Reserve bank governor which indicates that the currency note is nothing but a contract between the bearer and the State and the RBI is under an obligation to pay the specified sum of money to the bearer on presentation of the currency note. The currency in circulation is the liability of RBI and if the amounts are not deposited within the stipulated time then, the same can be written off by RBI thereby reducing its liability. Now, the question comes how a contract with the bearer can be unilaterally repudiated by the Government? There are various PIL’s filed stating this point before Supreme Court also. Even Former RBI Governor D Subbarao stated that in the past there were identical announcements from the Government but the word “Demonetisation” has not been used in the press releases and it talks only about “cancellation of the legal tender character” and thus he draws a fine distinction between Demonetisation and Delegalisation.
The costs associated with this scheme is also to be noticed along with the benefits expected to be derived from it and economists oversee that the benefits exceeding the associated costs of this announcement is going to be very minimal. Also, there is an alternative view suggesting that instead of aiming at the least value category of black money holders, the larger proportion category can be targeted so that the result will be optimal.
Having said all, the scheme aims at un-accounted cash alone and a very large proportion of the so called black money is held in assets like Gold, Properties etc.., and we can expect that there will be some measures taken to curb the same in future. But the move is definitely a hard hitting alarm warning for all those black money holders who want to sit on the top and enjoy on the hardships of the genuine tax payers. This move has already created lots of ups and downs and what it will further create?
WE NEED TO WAIT AND WATCH!!
Tags :Income Tax