End of Black Money? Go Home You are Drunk!

Gurumayum Bidyasagar Sharma *

PM Narendra Damodar Das Modi just scrapped the 500 and 1000 INR notes in a move to curb “black money”, some people are even calling this a surgical strike against Black Money. Well it has created such a fuss since its announcement. It has had great impact on everyone, right?

I had tried explaining what I am about to write in the next few lines to some of my colleagues and it turns out I was being Anti-Modi and Anti-BJP, point taken and duly noted. This is a disclaimer that I am neither Anti-Modi nor am I a big fan of RaGa. I am just trying to look at this issue from a broader and different perspective rather than just going by what they have told us.

So let’s talk about black money in India. All those undisclosed income, assets in any form which evade tax or those earned from illegal activities comes under black money (this is just the brief definition and no official definition as such is available). So according to this it means that if a Government doctor also practices at a private hospital or clinic and its income is undisclosed in order to evade tax, then it becomes black money by default.

How much amount do you think does India has as black money? It’s really a question with no right or wrong answers. India has about 126$ Billion as hard cash, mostly in 500 and 1000 notes. So it seems Narendra Modi has a point in demonetizing this notes. 126$ Billion black money successfully cut off and destroyed.

The amount of black money in the form of hard cash is just a tiny fraction of the actual amount. The bigger bulk is in the form of yellow metal, diamonds and other precious jewellery or stones, investment in other company through shadow companies, movable and unmovable assets and many other means. So what about all those? Yes you call it a start, but with the wrong foot.

Approximate weight of 1 Crore rupees in 500 rupee note is about 23 kg (20000x1.15g). This means if someone have to hide 100crore they need space to stash 2000000 notes or about 2300kgs.The point is people don’t stash 100crore rupee at home or any other place. They invest it in many ways by evading the officials (bribed?) and in the process generate more and more black money.

The amount of Black money mentioned above is domestic i.e. inside the country only. According to CBI reports more than 500$ Billion are accumulated in Swiss Bank alone. What about in Dubai, Pakistan and other countries.

I will have to take back my words stated above “126$ Billion black money successfully cut off and destroyed”. Let’s see if we are really sure about all of this amount will become useless.

Religious trust for instance do not fear the tax man because their income is exempted from tax under certain section guaranteed and provided by law. Dubious religious trust had been and is still helping crooks launder their black money. This time too they may play the Good Samaritan to their partner in countering this demonetizing move.

Political Party which are registered under ECI enjoys a very special rights like no one else i.e. no need to account for small donations which is less than 20000 INR (Section 29-C of the Representation of the People Act 1951). Political parties might accept donations or pretended donations from well-connected black money hoarder in these denominations and this in turn reaches the bank without any fear of the taxman.

One news everyone seems to have overlook on the day of announcement of demonetizing 500 and 1000 is that sales in Gold and other precious metals and jewels were sky rocketed and so was the price of gold. Jewellery stores were piled with people wanting to convert their hard cash to the yellow metal which is considered the surest form of investment.

The agricultural income in the country is going to be very high this year regardless of whether the crop is good or not. People with undisclosed income will (or should we say may) collaborate with farmers and the farmers will in turn say they got the money from selling their agricultural product and the bank will have no option but accept the deposit which can be withdrawn later when the rules soften a bit or when the taxman is tired of waiting for the money that never turn up or when they have assume the unaccounted money has lost value. See how people can find a way to come out of this alive.

So in the process part of the 126$ Billion dollar in hard cash will be useless, but just a part of the hard cash is devalued other gets assimilated into the system in one form or the other. This means that demonetizing of 500 and 1000 rupee notes will curb fraction of the hard cash black money which in turn is just a fraction of the Black Money. What this means is that this announcement and surgical strike against Black money will not be able to hit hard the Black Money world because it is rooted too deep. You can trim the branch and its gets messier.

It is worth noting that this announcement has seriously affected the daily wager, shopkeepers, hawkers and the list goes on. You want to buy tomato from the vegetable vendor, you pay in either change or buy for the whole 500 (because all everyone does not have PayTm). And what is this with a larger denomination of note, 2000INR. This means when it comes back to normal and people start hoarding black money again, the person who was capable of hoarding 2crore in his suitcase will be able to hide 4crore as hard cash easily.

To all those people who call this as ‘Surgical Strike’ it is just merely an act of arrogance. It will never be able to curb black money. In the first place the very notion that demonetizing will curb black money is wrong. Don’t take my word for it but take those of Abhiroop Sarkar a Professor from Indian Statistical Institute has said so many a times in the past.

And even it could have done so remember we are living in a Country called India where finding alternative means is not much of a problem.

For example let’s hear this small story. Point taken that announcement was made around 8pm and jewellery shops mostly opens up-to 9pm. So only about a couple of minutes left for buying or converting hard cash into yellow metal or other precious jewellery. This is where the short stories comes into play.

There was this guy call Nixon. And Nixon has a lots of Money. When he hears the news he is stunned. He didn’t have any time to react. But he has good connection and he is very powerful. So he sends out his guy the next morning or the next day and ask them to chalk out a plan with the jewellery shop owner or the manager. They agreed of giving the owner or manager a hefty 5% of whatever they bought from their store and Manager in turn agrees to date back the receipt. Nixon’s men give the manager or the owner or both of them 5% or so in Gold or whatever they bought from their own stores. So Nixon has converted his money into yellow metal. The jewellery store can go to the bank and deposit the money as legitimate money because he has already been paying IT as required. Nixon goes home happy and have a good night sleep so does the jewellery manager and the owner.

All is well that ends well, right? Genius plan.

So has demonetization able to curb black money? I don’t think so.

Who has been hit the hardest? The lower class middle class and the lower class people has been hit the hardest. People who had a couple of 1000s and 500s has been hit the worst. They cannot buy daily utilities with this money. People don’t like wasting a day in bank in long queues for exchanging their 1000 or 500 notes for about 5000.

And there is also another possibility. Just an assumption. Disclaimer that this is just an assumption.

Election in 5 states is due on January next. Black money is merge to domestic market during this time. BJP is in power. BJP or no BJP everyone spends hordes or money during this elections. People had circulated 2000 INR notes much before its announcement on Internet. This means that some people had prior information on the demonetization of 500 and 1000 notes. And hence many people could have already converted their 500 and 1000notes into notes of 100s or yellow gold.

And by the way to all those people who thinks election will be hit hard, don’t worry it will be as corrupted as ever. And also black money is not generated during election (up-to a certain point yes), it is a means of spending and merging the black money in the real world.

I agree with you Mr Prime Minister, black money needs to be stopped once and for all but you are just trimming the branch when what is needed is uprooting the whole bad tree.

But with Modi you never know what he has in mind. May be he has a better plan standing by for his command to hit hard the Black Money as a whole, may be this is just the teaser. And Mr Modi what a superb timing to announce this, now nobody reads about Pakistan arty killing civilians in border, Indian and Chinese armies’ standoff in Ladakh etc. Everyone is too worried about their money now one gives a dime what happen to other issues at all.

Oh and last but not the least, don’t read the Panama Paper now, its available online.