But why is New Delhi introducing 2,000 rupee notes, in a country where three-fourths of the people surviving on 20 per day?
Kenneth Rogoff, in his cause célèbre “The Curse of Cash,” which was published this past summer, made a persuasive argument against currencies of high denomination. The Harvard economist drew attention toward the importance of discontinuing currencies of high denomination such as $100, €100 euros and 1,000 Swiss francs.
Indeed all these high denomination currencies are aiding the dark underworld of drug trafficking and terrorism, illegal migration and bonded labor, and immoral trafficking of women and children across international borders.
Indeed large-scale tax evasion across countries has also been facilitated by this high value legal tender. Though there has not been a follow-up in any part of the world, all of a sudden, on the day of the election, Indian Prime Minister Narendra Modi made the announcement to the fellow citizens that, as part of its war against black money, his government was withdrawing the 500 and 1,000 rupee notes.
Paradoxical indeed that these large denomination notes with the Gandhi insignia on it, the so-called “legal tender” of the state, has been a silent spectator to large-scale illegal activities in its plenitude in India. From the urban lumpenism in the underworld with the patronage of politicians and the real estate mafia in Mumbai, to the mass rallies (often without any agenda) organized at Ram Lila Maidan in Delhi, to anointing the scion of some feudal politicians of the border states of Delhi, these notes with the Ashok Chakra and Satyameva Jayate have been part of a lot of nefarious activities.
Let ‘s not go to the interior of the country. Let us speak of Delhi. All these years, flat owners in the urban village of Munirika collected all their rents from many of their multi-storied buildings in cash, gave no receipts in return and paid no tax whatsoever. Wholesale dealers of Azadpur Mandi, too, did all their transactions in cash.
This was happening when India’s IT techies have made remarkable progress in pushing the economy to the electronic payments highway. As a result, high value payments made through the RTGS and NEFT have increased steeply by three times between 2011 and 2016. The IMPS and mobile banking facilities are now available in the country. Even before a number of advanced economies, India put in place electronic trading platform for trading in securities and stocks.
But all of those who are dealing in cash are only too aware of the portentous dangers associated with them being brought under the tax net in case they resort to this highway for transactions. The taxman will come calling.
The property prices in the middle income colonies in Delhi, which are at stratospheric heights of 15 million rupees or more , are indeed pump-primed and kept at these stable levels thanks to the blessings offered by the 500 and 1,000 Satyameva Jayate rupees. Indeed, the joke in Delhi is that one could buy a flat in Virginia with the Delhi salaries, but not in South Delhi.
On my query to a realtor as to why the Indian realty prices was not declining even after the US crash, he quipped that it was turbocharged by black money, which was far less in the United States. The lawyers who make the adjudication at the courts of Delhi, the doctors with their own clinics or the tutors in the city that teach in large scale, and the chartered accountant who cook up all their tax accounts — all have seen their share in the slice of the growing black economy pie of the country.
Now this announcement has come as a big shocker to many. They were putting their heads into action to discover new routes of making unaccounted money white. The jugaad in India will come with innovative ideas to fight this. Minutes after the announcement into the midnight, some here brought groceries for a year, and went gold shopping at South Extension shops. Many others offered thousand rupees to fellow countrymen requesting them to return half of it back, after a few days. And then, there were large troves of unaccounted money abandoned in different parts of the city, from river banks to garbage bins, and some have even set them ablaze. In fact, ill gotten wealth is being set afire in different parts of the country.
As per the data of the Reserve Bank of India, the currency in circulation in India amounts to 17,077 billion rupees, 80% of which are in 500 and 1,000 rupee denominations. This implies that at least 13,000 billion rupees has been removed out of circulation, to be replaced by new notes. With this post-Diwali bonfire on black money happening in different parts of the country, it could easily be gauged that of the 13,000 billion rupees are withdrawn, if there is at least 10,000 billion returned to the RBI for fresh issue , it would be miraculous. Assume that this happens, then 3,000 billion rupees are not going to be handed over to the RBI for exchange.
Given that this would reduce the liabilities of the RBI by 3,000 million rupees, the government of India, which fully owns the RBI, would get a big bonanza. As per the RBI data, the surpluses transferred to the government in the year ended 2015-2016 were to the tune of 658.80 billion rupees. The central bank could now ready itself to add to the coffers of the government at least five times as much next year.
Apropos to the efforts of the government in this regard, one has only two queries. Now that we are steadfastly going ahead with it because of reports that another country has been printing fake Indian notes, shouldn’t part of the credit of it go to them too? Why did we wait so long for this? And two, Rogoff, in his book, was drawing attention to the problems of high denomination notes. Even when we are withdrawing 1,000 rupee notes, why are we replacing it with 2,000 rupee notes, that too in a country, this would make no purpose to three-fourths of the people, who are surviving on measly expenditures of twenty rupees per day. And most importantly, will the government take the Mauritian round tripping problem seriously and take this process forward?
(Krishnakumar S. teaches economics at Sri Venkateswara College, University of Delhi)
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