Currency Demonetization: Essay by Mohaq Siddiqi, Queen Mary Univerisity of London

By Mohaq Siddiqi (LLM with specialization in Energy & Natural Resources Law, Queen Mary Univerisity of London,
London)

“Corruption and hypocrisy ought not to be inevitable products of democracy, as they undoubtedly are today.” – Mahatma Gandhi

The latest initiative of the BJP government is the direct result of the injury caused to the Indian democracy and its individuals by the amount of corruption taking place in India. Corruption is a menace to the society. The steps taken by the BJP government was much needed for a very long time to remove this tumor which was killing the society.

This is not the first time that India has demonetized its currency. The same strategy was adopted by the Reserve Bank of India in 1946 by actually banning the Rs 1,000 and Rs 10,000 notes to deal with the unaccounted money also known as the black money. After demonetizing the Rs 1,000 and Rs 10,000 notes there was introduction of Rs 5,000 notes in the year 1954 which didn’t stay for long in the market and was eventually demonetized again in 1978.

This initiative is going to be advantageous as the government is strictly aiming at creation of a barrier for those who have not disclosed their actual assets and are using the money which actually belongs to the citizens of India to buy properties in countries where the laws are less strict. The individuals have also been using their black money by creating shell companies and carrying transactions across various countries and institutions where the money was initially injected through.

This initiative of the government to attack corruption will make it hard for those in possession of black money to use it. The aim of taking out Rs 500 and Rs 1000 notes out of the circulation in the market is to reduce the amount of illegitimate money in the economy. According to the economist the notes which have high value make it much easier for black money to move around the country.

This decision of government of demonetization would make it extremely difficult for the law breakers and the corrupted to carry out tax evasion, financial crime, money laundering. When the high denomination notes will escape the economy the corrupt individuals and companies will have higher risk of detection. Additionally for the big companies who are committing tax fraud and had been doing this for a long time, this would disrupt their business models completely.

It will extend the capacities of the financial framework, which as of now does not stretch out the nation over, and the interim time period will likewise observe numerous endeavors by those clutching undisclosed cash or black money to transform their money into legal tender. The application likewise depends vigorously on Indian authorities truly handing over on the guarantee to make it simple for individuals to transform their old currency into smaller denominations. After this, the administration plans to reintroduce a new Rs 500-category note, with constrained circulation.

The real issue which revolves around this is the implementation process. It in itself is a difficult task. India being one of the largest developing countries has a very slow democratic system. Policy making is half success unless its implementation is in effect. In a country where only 3%(approximately) of its population is tax payer this will further lower the burden on the government and those who were bearing the tax burden due to inefficiency in the implementation of tax policy.

But in the instant case to make this demonetization successful Narendra Modi & his government is planning to carry out massive operation over the next few months , as millions of Indian citizen would make an attempt to exchange their old notes.

The government would ensure that the citizens of India are not troubled while in the process for changing their currency to the new one. This would surely give a headache to public authorities as this could lead to increase in the burden on the public officers and could even require more employees to carry out the process related work throughout India.

This step would send some clear signals to those in possession of black money that the new government won’t let them sit comfortably and they can’t run away from their liabilities now. The government earlier this year had given the ultimatum to those with possession of black money and they were already given an opportunity to disclose their actual assets and they can keep fifty percent of it and the rest fifty percent would go to the government.

Earlier this year the government had recovered thousands of crores of black money which showed the impact of the new leadership on its democracy. After this process of demonetization the Indian government has just confirmed that it won’t let corruption in any way to hamper it development and progress in future.

It is an enormous move from a government that is getting the mid-way mark of Modi’s term and something of a chance ahead of elections in the state of Uttar Pradesh and Punjab, where one might expect much cash to be flying around. It follows Modi’s financial inclusion scheme, an income declaration scheme and a special investigation team aimed at cracking down on black money, and suggests an actual attempt to deliver on the black money promises made in the BJP’s campaign.

This would further send out a good signal to investors who are or have been willing to invest in the Indian market for a very long time but were somewhere uncertain about the security of their investment as they were aware of the corruption happening in India. This measure taken by the Modi government would certainly lead to more foreign investment as the companies are willing to do business in economies which are least corrupt.

The success of this policy as of now cannot be scaled as it totally depends upon implementation process but what one can be sure about is that this step would bring an huge amount of undisclosed assets into picture which could further be used by the government to fight against the main issues such as poverty and lack of good healthcare system.

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