The withdrawal of Rs 500 and Rs 1000 currency notes from current circulation and the attempt to introduce new bills into the Indian economy could not have come at a better time.
First proposed by Aurangabad based chartered accountant Anil Bokil, it seems Prime Minister Narendra Modi was toying with the idea for some time now. This is indicative from the fact that the Jan Dhan Yojana was introduced in August 2014, when the PM declared from Red Fort that he wanted every Indian citizen to have a bank account.
While campaigning for the Lok Sabha polls, Modi had promised that he would flush out black money from the Indian economy and book those who had amassed cash illegally.
Fed up with the string of scams that had been exposed during UPA II regime, the concept of booking the corrupt had been consumed by voters with enthusiastic approval.
For over two years now, the people of India were waiting for credible lists of illegal account holders abroad and some concrete action against black money hoarders.
So when the demonetisation announcement was made by the government, it was welcomed by almost all and sundry as a move to curb graft, though the first reaction was obviously of shock and confusion.
And though it will take a few days, possibly weeks, before the dust settles and we feel like we are in control of our cash flow, the attempt to withdraw high denomination currency seems to have been thought through, especially the timing.
- The broadcast was made at 8 pm, when the entire banking process had come to a halt. There was no technique left for the fraudulent to attempt a colour change of their currency from black to white, though one hears gold got sold at a premium.
- The move comes just after Diwali when shopkeepers, jewellers, traders, and anyone who sells anything had done brisk business and has the peak amount of black cash. At no other time in the year, than after Diwali, do merchants have more illegal pilings.
- Post Diwali, the wedding season sets in. This is when the large amounts of cash stockpiled are spent on lavish parties and expensive gifts. The government has nipped the extravaganza in the bud.
- The evening of the announcement was the one just before US election results. The satta market must have finished finalising its bets on who would be the next President. Huge amounts of illegal cash would have exchanged hands the next day, but with old currency no longer being a legal tender, the entire bookmaking circuit would have gone into a tizzy.
- Assembly elections particularly in the critical state of Uttar Pradesh are round the corner. Cash is freely distributed to buy voters or purchase lures for potential voters. Demonetisation will thwart this entire gamut of black money based business of criminal and underhand political dealings.
With demonetisation, Prime Minister Narendra Modi will suck out Rs 14 lakh crores of high denomination money floating around in the Indian system.
He also hopes to trounce the nefarious designs of those whose interests are inimical to India. Some including elements in our neighbouring countries have been pumping in fake currency to derail the Indian economy. This masterstroke is likely to upturn all such deleterious motives and also cleanse our own system to some extent.
However, this a one-time move, an attempt similar to that made by Morarji Desai in January 1978 and before that in January 1946. This will have benefit but only till a limited degree and duration.
A longer and more protracted policy to check corruption as well as an efficient tax administration is needed to dissuade people from evasion.
One very good way would be to cut taxes to a level when people feel paying is easier than nursing a headache. The other would be to find and nail those who have stashed bundles abroad and are sitting and smiling at Modi’s clean-up inside India.