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Demonetisation is an “also-ran” measure: RBI

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8 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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Jammu and Kashmir: CRPF vans damaged, stones hurled amid protests against Vaishno Devi ropeway project

The residents have been complaining that the project would negatively impact the environment and their livelihoods.

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4 hours ago

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November 25, 2024

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Jammu and Kashmir: CRPF vans damaged, stones hurled amid protests against Vaishno Devi ropeway project

Massive violence broke out in Jammu and Kashmir’s Katra after the protestors pelted stones and clashed with the security forces during their protests against the proposed ropeway project along the trek route to the holy shrine of Vaishno Devi atop Trikuta hills. 

Reports said that the protestors hurled stones at the security personnel and damaged a CRPF vehicle. Paramvir Singh, Reasi SSP told media that the protest was going on peacefully for the past three days but on Monday some protesters pelted stones at the security forces. 

In Jammu and Kashmir’s Katra, the shopkeepers and labourers on Sunday took out a protest rally on the third day of their strike and held a sit-in outside the office of the subdivisional magistrate and Shalimar Park in Katra, the base camp for pilgrims visiting the shrine. 

A member of the joint committee of shopkeepers and pony and palanquin owners had said that the 72-hour strike has been extended by another 24 hours, adding that they will meet again and announce our future course of action. Notably, the three-day strike called by them began on Friday. 

Reports stated that while the businesses located at the base camp of Katra remained operational, shops lining the pilgrimage route from Ban Ganga to Charan Paduka observed closures. Nonetheless, the suspension of pony and palanquin services is causing hardships for the pilgrims, especially the elderly and differently-abled, to continue their sacred journey.

The residents have been complaining that the project would negatively impact the environment and their livelihoods. They asserted that the ropeway project would render them jobless, and also accused the authorities of pushing through the development without adequate consultation.

Meanwhile, Jammu and Kashmir Lieutenant Governor Manoj Sinha has assured the protestors of their employment. He mentioned that the committee headed by the Divisional Commissioner has been deliberating on the ropeway project and the rehabilitation of the locals. Furthermore, he also emphasised that the genuine concerns of the locals would be considered while the development of the region would not be ignored.

The Shri Mata Vaishno Devi Shrine Board (SMVDSB) had announced implementation of the long-awaited ropeway project to facilitate a safer and faster journey for the pilgrims. As per the project details, the ropeway will be developed with a cost of Rs 250 crore between Tarakote Marg to Sanji Chhat along the 12-kilometre track.

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Delhi Pollution: GRAP IV restrictions to continue in national capital, says Supreme Court

The court also pulled up the Delhi Police over no checkpoints at the borders of the city for checking the pollution measures and said that it was a serious lapse.

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5 hours ago

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November 25, 2024

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Delhi Pollution: GRAP IV restrictions to continue in national capital, says Supreme Court

The Supreme Court on Monday refused to relax GRAP IV measures in Delhi and ordered the CAQM to consider relaxing norms for students. The apex court observed that several students cannot avail midday meals, online classes and cannot access air purifiers.

The court also pulled up the Delhi Police over no checkpoints at the borders of the city for checking the pollution measures and said that it was a serious lapse. A bench headed by Justice AS Oka stated that they would consider prosecution of the Delhi Police Commissioner under the Commission for Air Quality Management (CAQM) Act for deploying police personnel at only 23 checkpoints, when Stage 4 of the GRAP was implemented.

Earlier, the court has also appointed 13 members from the court as commissioners to check whether the GRAP IV measures are being implemented or not. On Monday, the commissioners submitted their report to the court.

Subsequently, the court told the Delhi government that there were no checkposts at borders of the city and that the ban on trucks entering into the capital was not being followed properly.

The top court bench said that they were informed that no police or government personnel were present at the border checkpoints, and they were only manned by toll collection staff of the Municipal Corporation of Delhi. Mentioning that they will direct prosecution against all officials, the court questioned why the police were not directed to take action under Stage IV of the GRAP.

Responding, Advocate Shadan Farasat representing the Delhi government said that the CAQM had issued directions. Consecutively, the court asked him to show what written instructions were given by the state and the central government to the police on November 18. To this, Advocate Farasat said that directions were issued to post police personnel at 23 checkpoints where trucks could enter the city.

The court continued that this was negligence, adding that it will direct CAQM to prosecute the Delhi Police Commissioner.

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Maharashtra elections: Ajit Pawar criticises Sharad Pawar’s decision to field Yugender Pawar against him

Ajit Pawar said that Yugendra is a business person, and he had no connection with politics.

Published

7 hours ago

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November 25, 2024

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Maharashtra elections: Ajit Pawar criticises Sharad Pawar’s decision to field Yugender Pawar against him

After the Maharashtra Assembly Elections results, NCP leader Ajit Pawar criticized NCP faction led by Sharad Pawar for its decision to field his nephew Yugender Pawar against him in the family bastion of Baramati. Ajit Pawar also mentioned that his decision to field wife Sunetra Pawar against his sister Supriya Sule in the Lok Sabha election was a mistake. 

Sharad Pawar led NCP had fielded Yugender Pawar, son of Ajit Pawar’s elder brother Shrinivas Anantrao Pawar, in the Baramati Assembly segment. The constituency was represented by Sharad Pawar for over two decades, followed by Ajit Pawar for over three. In this assembly election, 33-year-old Yugendra Pawar was backed by Sharad Pawar and four-time Baramati MP Supriya Sule. However, Yugender Pawar lost out against his formidable uncle by a margin of over 1 lakh votes.

While addressing the media, Ajit Pawar said that Yugendra is a business person, and he had no connection with politics. He added that there was no reason to field his own nephew against him in the elections.

Earlier in the Lok Sabha elections 2024, Ajit Pawar had fielded his wife Sunetra Pawar against his cousin and Sharad Pawar’s daughter Supriya Sule, who won the contest by a 1.5 lakh votes margin. Later, Ajit Pawar admitted that it was a mistake.

Sharad Pawar had defended the decision to field Yugendra Pawar, mentioning that someone had to contest the polls. He had also said there was no comparison between Ajit Pawar and Yugendra Pawar. 

Notably, a 2023 rebellion led by Ajit Pawar against his uncle split the NCP founded by Sharad Pawar. Since then, the senior Pawar has been fighting to win his party’s name and symbol back. 

Previously In the Lok Sabha election, the veteran had trumped his nephew, with his faction winning 8 seats compared to Ajit Pawar’s score of 1. However this time, the tables turned as NCP (Sharad Pawar) scored 10, but Ajit Pawar’s party won 41.

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