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Demonetisation is an “also-ran” measure: RBI

Published

9 years ago

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Reserve Bank of India New Delhi. Photo: UNI

[vc_row][vc_column][vc_column_text]For the central bank, GST, insolvency and benami laws are more substantial moves to check black money[/vc_column_text][vc_column_text]By Parsa Venkateshwar Rao Jr

The Reserve Bank of India (RBI) in its half-yearly Financial Stability Report (FSR), released on December 29, 2016, has surprisingly moved the demonetization drive of the Modi government to one of the many initiatives. It is not at the top of the list though it has dominated public debate on the streets and in the media.

The central bank listed the bankruptcy law and the Goods and Service Tax (GST) as the two most important factors which would influence the performance of the economy. On demonetisation, the RBI said: “Other initiatives such as the withdrawal of legal tender status of specified bank notes (SBNs) could potentially transform the domestic economy.”

It would appear that Prime Minister Narendra Modi, Finance Minister Arun Jaitley and other ministers and BJP spokespersons would not trumpet demonetisation as the most important decision of the two-and-a-half-year-old BJP-led NDA government.

The RBI has noted several measures taken by the government to tackle the challenge of black money:  “…the government’s resolve to take on the shadow economy through various measures are expected to deliver net direct and collateral benefits to the economy in the long run, and will also improve India’s international standing. Such measures include, among others, the income disclosure scheme, setting up of a Special Investigation Team (SIT), enacting a law regarding undisclosed foreign income and assets, amending the Double Taxation Avoidance Agreement between India and Mauritius and India and Cyprus, reaching an understanding with Switzerland for getting information on bank accounts held by Indians and amending the Benami Transactions Act. Further, the initiatives for encouraging the use of non-cash and digital payments and withdrawal of legal tender status of specified bank notes (SBNs), accompanied by changes in income tax rules are expected to result in a shift away from the significant dependence of Indian economy on cash-based transactions….”

It is evident that the government’s boast and its attempt to spread the message that demonetisation was a bold and firm response to tackle black money and the “shadow economy” does not find favour with the central bank. It does not seem to consider demonetisation as the radical move that the Prime Minister and his colleagues have tried to project it as.

Addressing the issue of “shadow economy”, the FSR notes that it is a worldwide phenomenon and that it is difficult to define it in precise terms. It says, “The term shadow economy may refer to black economy or black money. There is no uniform definition of black money in economic theory and various other terms such as ‘unaccounted income’, ‘black income’, ‘dirty money’, ‘black wealth’, ‘underground wealth’, ‘black economy’, ‘parallel economy’ are also used in this regard. In the Indian context, the White Paper on Black Money, released by Department of Revenue, Ministry of Finance in 2002 adopted a definition of black money “as assets or resources that have neither been reported to the public authorities at the time of their generation nor disclosed at any point of time during their possession.”

And it notes, “In recent literature and usage, shadow economy is also referred to as System D. Though estimating the size of the shadow economy is challenging, according to the Organisation for Economic Co-operation and Development (OECD) half of the world’s workers were employed in the shadow economy in 2009 (this number is likely to grow to two-thirds by 2020).”

Compared to the populist twist that the government sought to give and make it appear that demonetisation was the magic wand that would conjure away black money, the FSR lays bare the complexity of the problem. It explains in clear language the connection between shadow economy, employment and tax rates. It says, “One of the many problems with the shadow economy is that it renders official statistics unreliable and severely impacts policy formulations by governments. Besides, the loss of tax revenues may force governments to hike tax rates, which in turn may further encourage greater activity in the shadow economy. As per some analyses, in the US a 1 percentage point increase in personal income tax rates, other things being equal, tends to increase the size of the shadow economy by 1.4 percentage points. Similarly, a 1 point increase in a regulation index (ranging from 1 to 5) corresponds to a 10 per cent increase in the shadow economy. There is also evidence in some economies of dynamic mobility between the official and shadow economies depending on the relative ‘net’ wage levels; this in turn is an indication of the influence of tax rates and rigidities in labour markets on the size of the official versus shadow economies.”

And it gives its clear view as to the best way of tackling shadow economy, black money et al, and it does not suggest even in an oblique manner that demonetization is the solution, or even that it is one of the solutions. It says, “While the impact of the shadow economy on direct tax revenues is a concern, its role in contributing to indirect taxes and economic growth is debatable. The best way to contain the shadow economy is to improve governance and quality of public services, avoid excessive regulations, impose stringent penalties and have a compatible tax structure.”[/vc_column_text][/vc_column][/vc_row]

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MK Stalin predicts frequent PM Modi visits to Tamil Nadu before assembly election

MK Stalin has said Prime Minister Narendra Modi will visit Tamil Nadu more often ahead of the Assembly election, calling the tours politically motivated and questioning the Centre’s support to the state.

Published

6 hours ago

on

February 25, 2026

By

MK Stalin

Tamil Nadu Chief Minister M. K. Stalin has predicted that Prime Minister Narendra Modi will increase his visits to the state as the Assembly election, expected in April or May, draws closer.

Speaking ahead of the polls, the DMK president said the Prime Minister has already begun touring Tamil Nadu and is likely to visit frequently in the coming months. He claimed that such visits could create discomfort within the BJP-led National Democratic Alliance (NDA), as alliance partners may fear the political impact of repeated appearances.

Stalin calls visit politically motivated

The Chief Minister described the Prime Minister’s scheduled programmes in the state as “politically motivated”. PM Modi is set to attend various events in Madurai in southern Tamil Nadu, including the inauguration of the first phase of the AIIMS hospital project. He is also expected to visit the Thiruparankundram Temple amid the Karthigai Deepam-related controversy and participate in a public meeting organised by the NDA.

Stalin said he has been working for all sections of the population, including those who did not vote for his party. In contrast, he remarked that some leaders are visible in the state only during election time and increase their visits as polls approach.

Criticism over Union Budget allocations

The DMK leader also criticised the BJP-led central government, accusing it of neglecting Tamil Nadu. He pointed out that while approval was recently granted for the Gujarat Metro project, there were no major announcements or allocations for Tamil Nadu in the Union Budget.

Stalin asserted that voters would remember the lack of significant measures for the state. He framed the upcoming election as a contest between Tamil Nadu and the NDA, stating that the state should be governed from Fort St George in Chennai rather than from Delhi.

The ruling DMK is currently allied with several smaller parties and, at present, the Congress, as it seeks a third consecutive term in office. Its principal rival, the AIADMK, is aligned with the BJP as part of the NDA.

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Shashi Tharoor questions Centre over Kerala name change to Keralam

Shashi Tharoor has criticised the Centre’s decision to approve renaming Kerala as Keralam, questioning its impact and pointing to the lack of major projects for the state.

Published

15 hours ago

on

February 25, 2026

By

shashi tharoor

Congress MP Shashi Tharoor has criticised the central government over its decision to approve the renaming of Kerala as ‘Keralam’, arguing that the move prioritises symbolism over development.

Reacting to the Union Cabinet’s approval, Tharoor said that the state’s name has always been ‘Keralam’ in Malayalam and questioned the practical impact of introducing the Malayalam term into English usage.

“It has already been ‘Keralam’ in Malayalam. So now, a Malayalam word is coming into English. I don’t know what difference it makes,” he said, adding that the state has not received major projects such as an AIIMS or new institutions from the Centre. He also pointed out that no significant allocations were made for Kerala in the Union Budget.

In a separate post on X, Tharoor raised what he described as a “small linguistic question” about what residents of the state would be called if the name change is implemented. Referring to existing terms such as “Keralite” and “Keralan”, he remarked that alternatives like “Keralamite” sounded like a microbe and “Keralamian” like a rare earth mineral.

The Union Cabinet, chaired by Prime Minister Narendra Modi, cleared the proposal on Tuesday. The move comes ahead of the upcoming state Assembly elections, in which 140 members of the legislative assembly are to be elected. The poll schedule is yet to be announced by the Election Commission of India.

The state assembly had earlier passed a resolution seeking the change in official records. Chief Minister Pinarayi Vijayan had moved the resolution in 2024, urging the Union government to adopt the name ‘Keralam’ in all languages listed in the Eighth Schedule of the Constitution.

He had stated that the demand for a united Kerala for Malayalam-speaking people dates back to the national freedom movement.

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Tamil Nadu potboiler: Now, Sasikala to launch new party ahead of election

Sasikala has announced the launch of a new political party ahead of the Tamil Nadu Assembly elections, positioning herself against AIADMK chief Edappadi K Palaniswami.

Published

1 day ago

on

February 24, 2026

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In a significant political development ahead of the Tamil Nadu Assembly elections, expelled AIADMK leader V. K. Sasikala has announced that she will float a new political party and contest the polls by fielding her own candidates.

Speaking in Madurai before heading to Pasumpon for a public event, Sasikala said she would unveil her party’s flag later in the evening. She indicated that more details regarding the party’s structure and plans would be shared at the gathering.

The event venue carries political symbolism. Pasumpon is the birthplace of Thevar leader Muthuramalinga Thevar, and Sasikala herself belongs to the influential Thevar community in southern Tamil Nadu. The programme was held as part of birth anniversary events of former Chief Minister J. Jayalalithaa.

Direct challenge to EPS

Sasikala’s move is being viewed as a direct political challenge to AIADMK general secretary Edappadi K. Palaniswami (EPS). After Jayalalithaa’s death in 2016, Sasikala briefly took control of the party and had appointed Palaniswami as Chief Minister. However, following her conviction in the disproportionate assets case, she served a four-year prison term, and during that period, she was expelled from the party.

Palaniswami later aligned with O. Panneerselvam, whom Sasikala had earlier removed from the Chief Minister’s post. The two leaders subsequently adopted a dual leadership arrangement within the party and government.

Sasikala remains disqualified from contesting elections until 2027 due to her conviction. Nevertheless, she has stated that she intends to field candidates under her new party banner.

Fragmented Thevar vote base

Over the years, expulsions within the AIADMK — including Sasikala, her nephew TTV Dhinakaran and O Panneerselvam — have led to divisions within the Thevar support base. Political observers have linked this fragmentation to the party’s weakened electoral performance in the elections following Jayalalithaa’s passing.

While Dhinakaran has returned to the NDA fold, reports suggest Palaniswami is opposed to any arrangement that includes Sasikala or Panneerselvam. OPS, meanwhile, has exited the NDA.

Sasikala has repeatedly criticised Palaniswami, describing him as a betrayer, while he maintains that his leadership stems from the support of AIADMK legislators rather than her backing.

The AIADMK has not issued an official statement on Sasikala’s announcement. However, a senior party leader questioned her political standing, pointing out her disqualification from contesting elections and referring to legal issues linked to Jayalalithaa’s death.

With the Assembly polls approaching, Sasikala’s re-entry into active politics could further complicate the opposition space in Tamil Nadu and influence electoral calculations, particularly in the southern districts.

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