Check corruption: Ban Rs. 1,000 note

It will also increase tax revenues

Amod Kumar and Sandeep Pandey | January 19, 2011

India’s tax revenues have steadily risen in the last few years. This has been primarily due to three reasons: high growth rate of economy, widening of tax base and use of information and communication technology for better tax collection with transparency, accountability and efficiency. But the government is still looking for ways to generate more revenues.

There is one big opportunity which we are still missing. That is of scrapping the higher denomination (Rs. 500 and Rs. 1,000) bills. This is not a new proposal but we need to rethink about it under changed circumstances with the presence of credit card, net banking, mobile and other ICT applications.

The government needs to announce a cut-off date (say March 31, 2011) about two-three months in advance for scrapping Rs. 500 and Rs. 1,000 bills. In this period, people can go to banks (authorised for this purpose) with their existing bills of Rs. 500/1,000 and exchange them for the bills of Rs. 100 denomination. All they need to produce there is a valid ID proof. They will be clicked by a camera there and their fingerprints (or Iris image) would be taken. This will ensure that one person can’t exchange at more than one place using a fake ID. However, with the same ID, one person can change as many times as he wants to during the period.

As a result, people would be forced to resort to electronic means of payment for bigger transactions. For example, to buy a jewellery item worth Rs. 2,00,000, a lady would have to carry 20 bundles of  Rs. 100 bills. It means a lot of inconvenience to her. To avoid that, people would resort more to electronic transactions like credit cards, debit cards, direct debit, cheque payment etc. This will bring more money in the tax net thereby increasing tax revenues. This only creates inconvenience for the people with unaccounted or black money. For a person with hard earned white income, there are plenty of electronic means available to make payments.

Political parties and candidates would find it highly difficult to store huge amount of cash for election expenses and to spend it during elections. This would to a limited extent, also help in cleansing electoral politics. Electoral politics is one of the main reasons for existence of corruption.

Even during initial exchange period, it will be very tough for the people with black money. Once the scheme is announced, generally people would hesitate in accepting these bills. People with lots of black money would not be able to convert it. If the government wants, it can announce a voluntary disclosure scheme (with a taxation of 50-60%) along with this to unearth black money.

It doesn’t affect more than 90% of the people of the country who rarely use the bigger bills. It will only affect the corrupt ultra rich two-three percent people. It also doesn’t affect the people with white money no matter however rich they are. They can easily exchange it initially and also use electronic transaction to do business later on.

Thus, this scheme has the multiple benefits of increasing tax revenues, size of white economy and reducing black money and corruption. The size of black money economy is estimated to be three times that of white money economy.

No scheme is 100% foolproof. This scheme also has its pitfalls. People would start using gold coins or other hawala kind of tokens to make large payments. This may give rise to a parallel illegal currency. But chances of this are rare, as the acceptance of an illegal currency would always be very limited. Even if this happens, still it would not be worse than the present situation, where black money is as freely and legally used in market as white money. This would definitely create a lot of inconvenience to people with black money. Many fence sitters may decide not to become corrupt because of this inconvenience in handling black money.

People can use dummies like servants, relatives during the initial exchange period of two-three months to convert large amounts of black money. If the duplication check software is not strong or is not properly implemented, then a dummy person with a fake ID can exchange huge sums of money. Proper checks and balances would need to be designed in the scheme to control this. For example, we can put a limit on the maximum amount of exchange allowed per person. Above that amount, he would need to produce his tax returns of last three years etc.

If one objectively examines this scheme, this is definitely in national interest, even if it may not be in the interest of highly placed corrupt politicians and bureaucrats. For whatever reasons, even if the government can’t implement it straight away, there is surely a case for further study or research or a committee’s appointment to examine this from all angles.

About the authors:

Amod Kumar is a UP cadre IAS officer who is on leave and currently working with the NGO IntraHealth.

Sandeep Pandey is a social activist.



Other News

Defence secretary reviews progress of aircraft carrier at Cochin Shipyard

Defence secretary Sanjay Mitra reviewed the Indigenous Aircraft Carrier (IAC) project at Cochin Shipyard Limited (CSL) on Jul 19. During the onboard visit, Mitra was given a briefing on the progress of the aircraft carrier construction by warship production superintendent Commodore Cyril Tho

Govt relaxes production sharing contracts of pre-NELP and NELP blocks, lowers ONGC burden

In order to boost domestic production of hydrocarbon resources, the centre has approved the policy framework for streamlining operations of production sharing contracts (PSCs) in pre-NELP (new exploration licensing policy) and NELP blocks. The policy framework includes special dispensation f

CSIR-NPL wants to develop petroleum certified materials with HPCL

In its bid to indigenously develop petroleum certified reference materials branded as Bhartiya Niredeshak Dravyas, CSIR- National Physical Laboratory (NPL) has signed a pact with Hindustan Petroleum Corporation Limited (HPCL). It will not only ensure maintaining highest standard quality ecos

31.67 GW of renewable energy capacity installed in last three years

A total of 31.67 GW of renewable energy capacity has been installed through implementation of various renewable energy schemes and programmes in the last three years in the country. Indian Renewable Energy Development Agency (IREDA) has conducted several following studies with foreign assist

An elastic plastic ban

For a ban that arrived with a bang, it seems to be fading away even before it could take effect. The Maharashtra government has backtracted to allow groceries and general stores to continue to use plastic for packaging after shopkeepers associations complained to state environment minister Ramdas Kadam. Al

BDL secures export order of $14.33 million

Bharat Dynamics Limited (BDL) has achieved 65 percent of its export target for 2018-19 FY after it bagged an export order worth $14.33 million for export of light weight torpedoes to a friendly country. BDL has a dedicated unit at Visakhapatnam exclusively for manufacture of underwater weapo

Current Issue

Current Issue


CM Nitish’s convoy attacked in Buxar


Facebook    Twitter    Google Plus    Linkedin    Subscribe Newsletter