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Demonetisation: 10 sustainable steps to cleanse India of black money

We could have achieved the purpose set out for demonetisation with far lesser cost, lesser pain albeit with greater effort.

December 8, 2016 10:24:23 am
demonetisation, demonetisation deposit, money exchange, PAN card for deposits, demonetisation crisis, india news Senior citizens queue up outside a bank in Mumbai Saturday. Express Photo/Dilip Kagda

By Mahesh Peri

The term ‘Black Money’ is an oxymoron. The fact that about Rs 12 lakh crore of the Rs 15.44 lakh crore demonetised currency is already with banks makes it more so. The steps I suggest here for cleansing Indian economy take time, don’t provide bragging rights and don’t result in shock and awe. They won’t make you look a hero. But they still need to be done. They are sustainable and have a far greater impact in the longer term.

Thankfully, the goal post for demonetisation now is also shifted to ‘long-term impact’. And they impact at the grassroots level. And these are the things I would do to the 0.01 per cent people to ensure that 99.99 per cent are not made to suffer.

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1. Make political funding only through cheque. BJP should take the lead. Bring political parties under RTI. As political donations are 100 per cent tax deductible, all of us would only be happy.

2. The biggest and the largest cases of money laundering stop at the gates of enforcement directorate than with the courts. Follow up every ED case of money laundering, release assets that could be seized and monetised for the country. Appoint fast track courts to settle them in a time bound manner.

3. The declared total NPAs of all banks are – 60,00,00,00,00,000 (6 lakh crores). If you are to add the stressed loans that have escaped provisions because of window dressing, this would jump to Rs 16-18 lakh crore. Attack them with all your might. Ensure tougher laws against wilful defaulters. Revisit the Sarfaresi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002). Tighten the judicial system to ensure that no one escapes. I am not talking of genuine business closures, please!

4. One data point suggests that at least 100 MPs are wilful defaulters to banks or have demanded a Corporate Debt Restructuring package (CDR). Set a higher stand of transparency to lawmakers – MLAs, MPs, chairpersons of government boards. A conduct certificate is necessary for all of us to get a government job, right? Any lawmaker who has ever gone through a CDR package or been a defaulter should be automatically barred.

5. According to a 2014 report by the government, about Rs 4,50,000 crore of taxes are stuck in disputes. As per another 2016 data, there are 73,402 appeals with tax effect above Rs 10 lakh and 1,85,858 appeals with tax effect below Rs 10 lakh pending before CIT (Appeals) across the country. Resolve them. Settle them. Collect the taxes.

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6. The tax disputes in the case of indirect taxes would be a multiple of that. The sales tax, octroi, customers and excise cases, if settled, would result in a windfall to every state government.

7. Make every transaction above Rs 50,000 only through banking channels. Reduce liquidity, albeit gradually. Ensure that all companies pay only by cheque.

8. Make Long Term Capital Gains Tax (LTCG) on real estate to 5 per cent and stamp duty to another 5 per cent. In fact, investments in stock markets are taxed (LTCG) at 0 per cent. This will ensure people will declare the right value. It helps everyone. The current capital gain rate of 30 per cent encourages under invoicing.

9. Ensure that all customs duty on gold is abolished. This will ensure that the difference between smuggled gold and that already in India is minimal.

10. This is most important. Corruption robs the most amount of money meant for the nation. Transparency International estimates that just truckers pay annually ?222 billion (US$3.3 billion) in bribes. Government regulators and police share in bribe money, each to the tune of 43 per cent and 45 per cent respectively. Corruption would be costing us any where between Rs 6 lakh crore to Rs 10 lakh crore. And this government hasn’t attacked it with the seriousness it deserves. The big worry of traders and small businesses is the harassment from tax authorities once they enter the tax net. Stop corruption and deal with corrupt officers with an iron hand. In the last two years, corruption in bureaucracy is not down, but up. We need to ensure the arbitrariness of tax authorities is minimal and discretions are to a zero. People must feel comfortable and happy paying tax, not scared and worried of future harassment.

We could have achieved the purpose set out for demonetisation with far lesser cost, lesser pain albeit with greater effort. We should have attacked money launderers, NPAs, wilful defaulters, settled tax cases and worked on reducing corruption. Instead, we preferred the easy way out and made the country stand in queue with ‘hope’ dangled at the teller machine.

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Mahesh Peri is Founder & Chairman, CAREERS 360. He is a qualified CA, CMA and ACS. Views expressed are personal.

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