The notebandi picture has become clear after a month. First, the scheme that the revenue secretary had announced on the day as the “biggest and boldest” attack on black money has turned out to be nothing of the sort. The government had told the Supreme Court that between a quarter and a third of the frozen currency notes would not surface, but it now looks as though most of it will be surrendered at bank counters. Hence no overnight bonanza to re-distribute, Robin Hood-style. Second, sundry money-laundering operators have been working overtime this past month, proving yet again that the tax evader is usually a step ahead of the government. The consequence is that the “biggest and boldest” exercise has morphed into nothing more than yet another voluntary disclosure scheme. How much it will yield in terms of black money declared and as tax remains to be seen, but expect more raids like the one on Chennai jewelers. Third, the careful planning that the Reserve Bank governor spoke of didn’t amount to much, since even after four weeks barely a quarter of the frozen currency notes have been replaced. At this rate, the process will be completed, not in Mr Modi’s 50 days, but in over three months. If this is as planned, it was deliberately cruel on millions of unsuspecting and entirely innocent citizens. If not, it was bungling on a monumental scale. Fourth, the government has swiftly and smartly turned on a coin, and shifted the focus to more-digital and less-cash as the real objective and benefit of notebandi. So we have the start of a series of follow-up announcements to encourage digital payments. None of these, however, needed notebandi as a precursor or facilitator; therefore these follow-through steps are not a justification or vindication of notebandi.
To be sure, digital payments have already increased greatly in scope and frequency, but the constraints with regard to smartphone penetration, internet access, banking infrastructure and other factors impose very real limits on how ‘less-cash’ the economy can become. Fifth, nothing has been done as yet to address two primary reasons for the generation of black money (which a perceptive commentator has rightly called the symptom, not the disease). One is illegal political funding. The big loophole here is the convenient stipulation that those who contribute less than Rs 20,000 to a political party need not disclose their identity. So how about changing that pronto, and declaring further that all political contributions must be cashless—so that there is a transaction trail. The other elephant in the room is high stamp duties on real estate transactions—one of the main reasons why this sector has attracted so much black money. If you had the same level of duties (usually 8 per cent) on share transactions, there would be no legit share deals either. If stamp duties were lowered sharply, a powerful incentive for a large cash component in the real estate market disappears. Simultaneously, if you raise property tax rates, the exercise becomes revenue-neutral for cities and towns. Sixth, letting people pay things like petrol bills digitally is underwhelming as a method for preventing the circulation of black money, especially when nothing is being done about the two most corrupt departments in any government: revenue/tax collection and police. Both are still untouched. The government should consider Kaushik Basu’s proposal that the bribe-giver be given immunity; this will lead to an explosion in the number of whistle-blowers. Corruption in these two departments will wilt just as effectively as Mr Modi’s ministers do when his stern gaze falls on them. Will such action points materialise? Don’t bet on it, for all the obvious reasons. But after sticking to “relentless incrementalism” in the first half of his term, Mr Modi has shown a capacity for bold, risky moves that shake up the system. So, who can tell?