DeMo can’t fight black money: Leading business body

Assocham study finds note-scrapping can do little to stop parallel economy

GN Bureau | January 18, 2017


#business   #economy   #currency   #corruption   #black money   #Demonetisation   #Assocham  


 

If fighting black money is the aim, demonetisation is the wrong weapon, says India’s largest and oldest business body. 
 
“Demonetisation may wipe out the stock of black money held in cash but can do little about the ill-gotten wealth converted to assets like gold and real estate and the scrapping of high value notes does not prevent the future generation of unaccounted money,” the Associated Chambers of Commerce and Industry of India (Assocham) said in a release on Tuesday, based on its study.  
 
While the study speaks of the possibility of wiping out the existing stock of black money, reports suggest that nearly all issued currency has come back in the banking system, and thus the move has failed to strike out even the existing stock of black money. In this context, Assocham secretary general DS Rawat noted in the press statement, “Indications that most of the scrapped currency has returned to the banking system through right or wrong means do suggest that demonetisation may not even fully wipe out the existing stock of ill-gotten cash. To that extent, even our study may turn out to be ambitious if the tax authorities are not able to trace the money laundered through different accounts. Given the resource constraints with the tax authorities, carrying out such an exercise for identification of laundered money may be a herculean task.”  
 
The argument, of course, has been made by many, yet coming as it does, even belatedly, from a leading business association shows unease in the economy about the move. 
 
“Invalidating existing high denomination notes addresses the stock of black money but little to address future flows. Eliminating such flows will require further reforms like lowering stamp duty on property transactions, electronic registration of real estate etc.,” the Assocham said. 
 
It also criticised loopholes in the high denomination currency withdrawal. “It is very difficult to separate black money from white money because distinction is not once-and-for-all. White money used to purchase something becomes black if the shop-keeper does not pay sales tax…”  
 
Much of conspicuous consumption is paid for in unaccounted money, which, in the hand of the recipients can again become perfectly legal income, it argued. Benami deals in real estate and commodity markets make it difficult to trace the transactions to the ultimate buyer or seller. “Even if the existing stock of illegal currency is wiped out by demonetization, it will be soon replaced as long as such points of contact exist between legitimate and illegitimate deals,” said the ASSOCHAM study quoting the Economic and Political Weekly journal. 
 
It said ultimately the problem of undisclosed incomes and wealth has to be tackled at the source. The government  must reduce  the opportunity and incentives for unaccounted  transactions by narrowing the gap between the market value and the one fixed by the government agencies for different levies like stamp duty etc.  
 
The chamber suggested several measures to check the menace of black money.  These include reducing discretionary powers to officers, which is possible if the rules and laws are crystal clear and are not left to individuals’ interpretation. 
 
“Ironically, several of our laws are badly drafted and framed, leaving scope for official discretion. The problem in a way starts here,” said the chamber, adding a strong political will would be required to deal with this issue.  Bureaucrats drafting the proposed legislations should be clearly instructed not to leave any grey areas.
 

Comments

 

Other News

On a personal note: DIVINE

An underground rapper who grew up on Mumbai streets, Divine spins his music around his environment and poverty. His breakout single, ‘Meri Gully Mein’, along with fellow rapper Naezy caught Bollywood’s attention. The Hindi film ‘Gully Boy’ is inspired by their lives and gr

The role model for an IAS officer

Anil Swarup, an IAS officer of Uttar Pradesh cadre who retired in 2018, is a model bureaucrat who retained his optimism right till the end of service and exemplified dedication and commitment. His excitement at the opportunities that a job in the IAS provided is evident on every page of his new book publis

Reform of the civil services: At home and away

The question of reform of the civil services has been debated extensively at all levels at least over the last five to six decades after independence. Indeed, it was soon perceived that the Indian Administrative Service (IAS) may not be well equipped to deal with the problems of an emerging developing coun

The greatest challenge for any government

Shouting vengeance at all and sundry while wriggling out of holes of our own making seems to be our very special national characteristic. Some recent instances are illustrative of this attribute. A number of business tycoons with thousands of crores of unresolved debts have fled abroad with the government

The mysterious case of CBI’s legality

The Central Bureau of Investigation (CBI) came into existence, based on a Resolution of the home ministry, dated April 1, 1963 – a sheer coincidence that it also happens to be April Fool’s day. Over the past few months, we have seen the CBI live up to its founding day with great zeal, being i

The Evolution of Modi

Gujarat was passing through a turbulent phase in the 1980s. The decade began middle class agitations against new reservation policies, and the caste friction turned communal under the watch of chief minister Madhavsinh Solanki, alienating majority of urban population on both counts. The ground was ripe for

Current Issue

Current Issue

Video

CM Nitish’s convoy attacked in Buxar

Opinion

Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter

Twitter