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.

Monday, April 1, 2019

The Wages of Idiocy

Prime Minister Narendra Modi’s surgical strike on black money took place through demonetisation on November 8th 2016. It was claimed that this would lead to a substantial amount of black money held as cash not being deposited and so the liability of the Reserve Bank in this regard would be cancelled out and this would accrue as a windfall dividend to the Government to pursue greater economic development.  About Rs 15 lakh crores were in circulation as Rs 500 and Rs 1000 notes at the time of demonetisation. In the absence of any rigorous measurement a conservative estimate is that the extent of the black economy is 50 percent of the official GDP. Thus, Rs 7.5 lakh crores was estimated to be the black money that would not be deposited resulting in a huge dividend to the government. Unfortunately, disregarding all warnings of dire consequences that would follow if citizens deposited demonetised notes of more than Rs 2.5 lakhs in cumulative value in savings accounts and more than Rs 12.5 lakhs in current accounts, people deposited all their demonetised notes and so eventually 100 percent of the notes were deposited and the Government did not get its expected windfall. On the contrary by having to print notes in replacement in a hurry to replace all the demonetised notes the Government incurred an expenditure of Rs 15,000 crores which reduced the dividend it gets annually from the RBI because of the profits earned by the latter from its money market operations.

The goal posts were then shifted and it was claimed that all those who had deposited money in excess of the prescribed amounts would be identified and prosecuted and in this way eventually the black money that was deposited would be traced. The investment in the information technology enabled wing of the investigation department of the Central Board of Direct Taxes was racheted up considerably to analyse the huge data of deposits that were coming in from the banks. As a result the following data was gleaned –

1.       18 lakh accounts had deposits of demonetised notes greater than the prescribed amounts
2.       11.44 lakh Permanent Account Numbers (PAN) were found to be duplicate and were deactivated.

After this action was taken as follows -

1.       Notices were sent to all those who had deposited more than the prescribed amount asking them to explain this and about 12 lakh people filed responses.
2.       Based on these responses notices were issued to  3,04,910 persons who had deposited more than Rs 10 lakhs in savings bank accounts and had not disclosed this in their income tax returns.
3.       As a result 2,17,557 persons filed income tax returns and paid self assessment tax  of Rs 6,514 crores while 87,353 persons did not file income tax returns at all and proceedings have ensued against them.
Thus, even if all those who haven’t filed returns are pursued and the returns of those who have are scrutinised, the total tax recovery is not likely to be more than the Rs 15,000 crores it cost to reprint the notes that were demonetised.

It was also claimed that the demonetisation exercise and the digital analysis of data has led to a larger tax base and better tax compliance resulting in greater tax revenue. The total tax recovered for the financial year 2016-17 in which demonetisation was carried out has not shown a phenomenal increase. Whereas the growth in the total direct tax collection in the financial year 2015-16 over that in financial year 2016-17 was 14 percent this growth had been achieved earlier also during the UPA regime and had in fact slumped to less than 10 percent in the first two years of NDA rule. The growth in direct tax collection the following year in 2017-18 was 17 percent but this too was achieved earlier in the UPA regime and is not remarkable. Even though there has been a significant increase in the number of tax filers and so the tax base has increased considerably, mostly they either file nil returns or they do so to get back refunds of tax deducted at source and that is why the actual tax collected has not shown a phenomenal increase.
Finally, there is the matter of greater digitisation of the economy and the claim that as a result of demonetisation India would move towards becoming a cashless economy. This has proved to be another red herring as the money supply currently is much more than what it was at the time of demonetisation and cash continues to be king.

The Black economy is thriving because the troika that is in control of the economy – businessmen, bureaucrats and politicians, are hand in glove in evading taxes. A much greater amount of black money is held in the form of fixed assets in India and abroad and in cash abroad than in cash in India. Thus, a surgical strike through demonetisation, even if it were to be successful in terms of the demonetised notes that are unaccounted not being deposited, it would neither yield much nor would it lead to a reduction in the black economy.

The biggest problem with ensuring tax compliance is that there are not enough personnel to check tax evasion. The only way to ensure greater compliance is to conduct scrutiny and search. However, this requires a lot of time and staff and that is why the self assessed returns of less than 1 percent of the total taxpayers are scrutinised and a miniscule few are subjected to searches. Even after this the tax evaders challenge the decisions of the tax department in courts and so a huge amount of tax demand is stuck in litigation. The tax evaders know from experience that the process of scrutiny is a long drawn one and that is why they didn’t heed the dire warnings of the Government regarding legal proceedings to follow and deposited all their unaccounted money after demonetisation.

Apart from the direct costs to the Government in terms of printing of new notes and the technology and human power deployed in the already over burdened tax department to trace the depositors of excess demonetised notes, the economy as a whole suffered. Initially the whole population had to line up in long queues to deposit their demonetised notes in banks and thus lost out on their regular work. The iconic photo of an old man standing crying in front of a long queue underlines this poignantly.

The banks bore tremendous costs as they had to stop all other work and involve themselves in taking in the demonetised notes and finally the Reserve Bank of India spent a huge amount of time counting the demonetised notes to arrive at the conclusion that almost all of them were deposited!!

 Especially adversely affected by demonetisation was the informal economy, where cash is the major medium of exchange and only a miniscule few transactions are done through banks. Many small businesses closed down due to lack of liquidity leading to loss of work for the poor who are mostly employed as casual labourers.  It has been claimed that India has continued to be the fastest growing major economy in the world despite demonetisation and so it is not true that the economy has suffered. But this is yet another red herring. India is the fastest growing economy because of its huge population which even if it does not work at its productive best, nevertheless contributes to the GDP in some way or other. The chai walas and pakoda sellers are all contributing to the economy even if that may not be the ideal kind of work they would like to do. So if demonetisation had not taken place the economy would have grown even faster. 
 All in all, demonetisation was one of the most idiotic exercises to have been carried out in recent times and the costs were borne by the economy and disproportionately by its poorest participants.

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