Demonetization – What’s the point of demonetization when most of the black money is hidden in different assets or in foreign banks ?

 

Black Money has to be seen in two different context.

1. Un-accounted cash in Indian currency notes
2. Assets bought by un-accounted money

  

Let’s look at both of them in detail.

1.      Un-accounted cash in Indian currency notes

A large and sizeable part of black money remains in form of un-accounted Indian currency notes. If there was no un-accountable cash, there would be no black money and hence no un-accountable assets from such black money. Un-accounted cash exchange hands but does not vanish

To illustrate further,

• Let’s assume person A has un-accounted cash at a given point of time and he/she buys a property (land or flat) from person B using un-accounted money.
•  Let’s further assume that sometime later person B buys gold from person C using this un-accounted money.

Now, when demonetization move is announced, person C is sitting on a pile of un-accounted cash. He/she has to either deposit (and pay penalty / tax, if applicable) or dispose/destroy it or find some other means.

While it is true that, for now, person A and person B have escaped and only person C is caught but let’s be happy that atleast person C is caught. This itself is a good start. We have seen in one of my earlier blog (http://khadloya.blogspot.in/2016/11/Demonetisation17.html) that such un-accounted (“unreturned”  or “missing” ) cash itself is expected to be more than Rs 3 lakh crores.

There are indeed ways and means to catch person A and B also and hope Modi government does something on that front very soon.

Even if people found ways to beat the current system and deposited most of their black money into banks via others (like Jan Dhan Yojna accounts, etc.,) this is still a good move to ensure money is brought out into main economy.

2.      Assets bought by un-accounted money

Yes, it is true that a much large portion of “proceeds” from black money remains in form of various assets, either in India or abroad. Some assets (like benami properties in India) can be un-earthed more easily than some other assets (like gold, precious gems, art works, etc., etc.,).

Honestly, when exposing ALL unaccounted assets within India itself is not easy / possible, there is no easy solution to get back assets hidden abroad for now. All these assets hidden abroad has happened over many decades under previous governments. I do expect Modi to make these assets less meaningful by taking certain measures and hope that government continues to take measures to bring them back soon.

For now, let’s be happy with Rs 3 lakh crore windfall that government is expected to get from currency notes itself, this itself will provide a huge boost to our economy and benefit common man immensely. Let Modi continue to take other measures to address other un-accountable assets

One such measure could be to ensure all real estate properties (be lands or buildings) are accounted for, to do so  is difficult but not impossible ! Such a move will expose most of benami properties. Other hope is banning all large denomination notes in near future. If there are no large notes, one cannot sell their assets like land or gold or anything else (be in India or abroad) for Indian currency notes easily. They will still find some other means and ways of utilizing these assets but it will not be in form of easy liquidity

Conclusion:

Just because many of the un-accounted proceeds are either abroad or in form of various non-cash assets does not mean that we should do nothing to check corruption and black money. If nothing else, let's start a new era with Rs 3 lakhs crores (or whatever the final amount happens to be) windfall that government is expecting. 

Let's not assume that Mod government will stop with demonetization, let's work towards ensuring demonetization succeeds and then ensure Modi take further steps in near future to minimize accumulation of such un-accounted assets in future.

If we cannot fix all issues of past, let’s atleast ensure they do not continue to repeat in future !!