Not just demonetisation, govt should completely abolish high-value notes: Anil Bokil

Artha Kranti had suggested an 18-month transition period instead of banning high value notes overnight

On November 8, when Prime Minister Narendra Modi stunned the nation by announcing his demonetisation policy, members of a small advocacy group in Pune, Anil Bokil's Artha Kranti Pratisthan, rejoiced.

However, two weeks after the old Rs 500 and Rs 1,000 notes lost their legal tender status, Bokil seems rather dissatisfied  with the government. in an interview to the Economic Times , he has said that replacing old high denomination currency notes  with new ones will  not curb the menace of black money. Bokil's group advocates the complete abolition of high-value currency denominations, which is not the path adopted by the Modi government.   

When the policy was announced, the nation seemed to be heading towards the path Bokil has been pushing for more than 16 years. In subsequent interviews with the media, the group he founded claimed credit for the banning of high value note, as they had met the prime minister several times, most recently in February 2016, pitching for their idea  that should be taken for ‘India’s economic rejuvenation’. (Read more) 

Should have followed our transition plan

Now, Bokil feels his group's plans were not followed properly. Speaking to the Economic Times over the weekend, Bokil said that he was not satisfied with the way "demonetisation" has been implemented. "This is not what we proposed," he said, adding, "The government has only taken one part of our five-point plan... We had a proper transition plan from large currency denominations to smaller ones."  

Pointing out that the old denominations accounted for close to 85 per cent of the notes in circulation, Bokil told the financial daily that if one were to ban the entire lot of these denominations in one go, as the government did, then how would the flow of currency be managed. "They’ve lost the transition plot completely. They should’ve stuck to our transition plan at least," he told ET. Further, Bokil insisted that the move would not  to undo India's shadow economy or the prevalence of black money, but to do away with counterfeit currency. 

So, what is Bokil's plan?

Speaking to Business Standard, Bokil said that his organisation was "not responsible" for how the policy had been implemented. He stressed that Artha Kranti had never suggested the overnight banning of high value notes. "There has to be an 18-month transition...," he said. Artha Kranti's plan involved five steps: 

• Abolish the existing tax system: First, abolish the existing taxation system, except for customs or import duties, completely.

• Levy only one tax: All the transactions above Rs 2,000 should be routed through the banking channel that would attract a bank transaction tax (BTT), say of two per cent, deducted at source. The central government, state governments and the local bodies get a share of this tax, which the banks transfer after deducting their fee. Bokil explained his logic to Business Standard: According to 2015-16 Budgetary Estimates, the combined tax revenue of the central and all the state governments was about Rs 20 lakh crore, plus Rs 1 lakh crore more for the local bodies like municipal corporations. However, according to the Reserve Bank of India's (RBI's) estimates, the average monthly bank transaction volume is Rs 120 lakh crore. Therefore, the same level of tax revenue can be generated through putting a BTT of only one per cent. However, as explained before, it leaves out critical factors. For example, a large chunk of the RBI number could be because of the interbank currency market transactions. The interbank transactions are done in such a wafer thin margin that tax is levied on the profit and not the volume. And then there is also the question of the same value getting taxed again and again down the value chain.  

• Withdraw high-value currency notes gradually: Second, withdraw high value currencies in phases so that the highest denomination available is Rs 50. However, the withdrawal of higher denomination notes, whether gradual or sudden, does not enthuse all experts. According to some economists ET approached for its article, such a move would make the rupee "unwieldy" for transactions. Note that the government has not followed Bokil's plan while implementing its demonetisation policy, not in its entirety anyway. The policy does not completely withdraw high-value denominations, only replaces them with a new series of notes and in the case of the Rs 1,000 note, with a different denomination — the new Rs 2,000 notes.

• No tax on cash transactions: After the tax system has been overhauled, the BTT levied and high denomination notes completely abolished, the government would then pass laws ensuring that all subsequent cash transactions would not attract any tax. This would be in conjunction with the fifth and final step in Bokil's proposal.  

• Impose limit on value of cash transactions: In the final phase, all cash transactions above Rs 2,000 or so should be restricted. Above this limit, there would be no legal protection.