Anarcho-environmentalism allegorised

The name Anaarkali in the present context has many meanings - Anaar symbolises the anarchism of the Bhils and kali which means flower bud in Hindi stands for their traditional environmentalism. Anaar in Hindi can also mean the fruit pomegranate which is said to be a panacea for many ills as in the Hindi idiom - "Ek anar sou bimar - One pomegranate for a hundred ill people"! - which describes a situation in which there is only one remedy available for giving to a hundred ill people and so the problem is who to give it to. Thus this name indicates that anarcho-environmentalism is the only cure for the many diseases of modern development! Similarly kali can also imply a budding anarcho-environmentalist movement. Finally according to a legend that is considered to be apocryphal by historians Anarkali was the lover of Prince Salim who was later to become the Mughal emperor Jehangir. Emperor Akbar did not approve of this romance of his son and ordered Anarkali to be bricked in alive into a wall in Lahore in Pakistan but she escaped. Allegorically this means that anarcho-environmentalists can succeed in bringing about the escape of humankind from the self-destructive love of modern development that it is enamoured of at the moment and they will do this by simultaneously supporting women's struggles for their rights.

Wednesday, November 8, 2017

Black Cash Remains King!!

A great deal has been written for and against the demonetisation of Rs 500 and Rs 1000 notes carried out on the stroke of midnight on 8th November 2016. Obviously a measure of this magnitude in an economy as large as that of India will have both positive and negative impacts. Since the negative impacts have been dealt with in great detail, I will dwell here on the positive impacts and argue that these impacts are not very great and could have been achieved much more efficiently without carrying out demonetisation.
The general rule of thumb assumption in the absence of rigorous data collection is that the black economy is 50 per cent of the official GDP or the black economy constitutes one third of the total economy official and black combined. Consequently it can be assumed that the black money also constitutes about one third of the total money in circulation. Therefore, given that about Rs 15 lakh crores were in circulation in the form of Rs 500 and Rs 1000 notes, it was assumed that about Rs 5 lakh crores of black money would be rendered useless as they would not be deposited. Since the money in circulation is a liability of the Reserve Bank of India which it has to pay to the people of India on demand, extinguishing of Rs 5 lakh crores of money would mean a huge surplus for the RBI which would then accrue to the Government as a dividend. So, the Government thought that demonetisation would be a master stroke that would not only remove Rs 5 lakh crores of black money from the economy but would also give it a dividend of a similar amount.
However, within a fortnight of the demonetisation it became clear that the Government's expectations were being grossly belied. Instead of holding back from depositing their black cash hordes, black money holders were using various ingenious means to deposit them wholesale and within the first month itself some 85 per cent of the total Rs 500 and Rs 1000 notes in circulation had been deposited!! ( Estimates are that eventually more than 100 per cent of the notes demonetised will be deposited because there was leakage from the presses where these notes were printed of which the RBI had no knowledge!!!) these Thus, the expectation of the Government that there would be a huge blow on black money as portrayed in this sand art below was totally belied and the Government panicked.
 Hastily it greatly bolstered the Income Tax Department's data analysis wing in Ghaziabad to find out who were depositing these notes in such large numbers so as to be able to track the black money holders. So the emphasis shifted to this huge data tracking exercise and the banks which were anyway burdened with exchanging and depositing notes were also mandated to send the records of these transactions to the Income Tax department. So now after a whole year of this tracking exercise the IT department has considerable data on who has deposited how much money in demonetised notes in excess of the Rs 2 lakh limit for savings bank accoutns and Rs 12 lakh limit for current accounts.
The results of this data analysis are as follows -
a) 18 lakh accounts have suspect deposits amounting to a total of Rs 2.9 lakh crores
b) 12 lakh of these accounts holders have filed responses to notice sent to them through emails or their Permanent Account Number (PAN) accounts.
c) 11.44 lakh PAN were deactivated because they were found to be duplicate ones allotted to the same assessee.
The problem now is that each and every one of these accounts will have to be investigated through the time consuming process of physical scrutiny of supporting documents, both in the case of those who have responded to the notices and those who haven't, to ascertain whether the money deposited was earned legally and whether income tax was paid on this earning. Given that under the normal course the IT department scrutinises only about 300,000 returns every year given its lack of manpower, it can easily be imagined how difficult it will be to scrutinise all the 18 lakh accounts with suspect deposits. So for the time being the IT department has said it will scrutinise only about 30,000 of the most glaring cases. The story does not end there as in most cases the assessees are savvy enough to file false documents in scrutiny to prove that their earnings are legal and that taxes have been paid. In such circumstances the IT department has to carry out search and seizure operations on the premises of the assessee involving hundreds of staff and police personnel. Such search and seizure operations are only a few thousand in number each year. Thus, all this hype about having detected Rs 2.9 lakh crores of suspicious deposits will take a very long time to materialise into actual taxes being paid to the Government unless the number of IT department staff is sufficiently hiked to take care of this extra demonetisation load. So far the increase in taxes for financial year 2016-17 has been in line with what has been taking place in earlier years also indicating that the demonetisation process has yielded only actionable data which has not transformed into higher taxes in the absence of action!!!
Apart from this a massive drive has been carried out against shell companies resulting in the deregistration of some 2.3 lakh such companies and the unearthing of about Rs 17000 crores that have been deposited and withdrawn through them post demonetisation. Also a campaign has been launched against "benami" property or property held in the name of other persons.
Finally it has been claimed that demonetisation has led to the increase in digital transactions in the economy. While the lack of cash initially and the waiving of charges on them did boost digital transactions for some time, as charges were reintroduced and the economy was remonetised, the digital transactions fell once again. Initially the Government had planned to remonetise to only about Rs 13 lakh crores or so instead of the Rs 17 lakh crores that existed before November 8th 2016. However, once the data for the GDP and jobs came in for the first quarter of 2017-18 indicating a sharp decline in both, the Government once again panicked and increased the remonetisation and so now the money supply is close to 15.5 lakh crores and still rising. Given that not much has changed as far as generation of black money is concerned, one can safely assume that one third of this is black money with huge transactions still going on in cash and so we are back to square one and as the saying in Hindi goes - after digging a hill we are left with a small mouse as reward!!!!
Thus, the only concrete gain from demonetisation is that duplicate PANs have been weeded out and there is greater collection and analysis of financial transaction data but without any idea as to when the action taken on this data will lead to actual increase in taxes and penalties paid and greater compliance in future. But demonetisation was not necessary for this. Earlier too there was a process of data collection of black transactions involving the reporting by banks of cash deposits of more than Rs 50,000 and high value bank transactions. If these had been diligently tracked by the IT department then dealings in black money would have been unearthed because the black money continually enters and exits the banking system instead of being kept totally outside of it. But this tracking was not being done to the extent necessary. It was only after demonetisation failed in its primary aim of extinguishing black money that the IT department pulled up its socks and initiated action against duplicate PAN holders, excess demonetised note depositors, shell companies and holders of benami property. But given the lack of staff it will be extremely difficult to convert this into extra tax income and better compliance in future, due to the ingenuity of tax evaders. So Black Cash continues to remain the King in India despite all the bluff and bluster of the ruling party!!!

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