On a November evening last year, bang in the middle of his five-year term, Prime Minister Narendra Modi addressed the nation, announcing that Rs 500 and Rs 1,000 notes would be taken out of circulation.
In his speech on November 8, Modi said, “To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight.”
In subsequent public speeches in those initial heady days after the note ban announcement there were suggestions and expectations that the move could bring enough black money into government coffers to fulfill Modi’s election promise of depositing Rs 15 lakh in the bank account of every Indian. But ingenious minds had other ideas and some people turned to Modi’s own schemes like Jan Dhan to sidestep the note ban. Six months from that big decision, the government and the central bank are yet to disclose the amount of banned notes that were deposited in the banks.
The Pradhan Mantri Garib Kalyan Yojana (PMGKY), an income-disclosure scheme, which opened on December 17, 2016, provided the last chance to holders of undisclosed income to come clean by paying tax and penalty. The scheme entailed a payment of 49.9 per cent tax, surcharge and penalty, and a mandatory deposit of 25 per cent of the black money in a interest-free account for four years. The scheme, which was expected to lead to disclosures in the lakh of crores of rupees, ended up seeing declarations of just Rs 4,600 crore till the deadline of March 31. The scheme was later extended to May 10.
Against estimates of black wealth of Rs 300 lakh crore and black money in cash of Rs 3 lakh crore by economist Arun Kumar, the PMGKY numbers fall short by a huge margin.
However, the note ban has had its benefits. There has been a 15 per cent jump in advance tax and a 24 per cent rise in self-assessment tax collections for 2016-17, the highest growth rate in at least five years, suggesting many people regularised their unaccounted income by recording it in the books.
Another statistic that helps bolster the argument is the remarkable rise in the number of assesses. Finance Minister Arun Jaitley said the note ban had helped the authorities bring 9.1 million people into the tax net. This is roughly one-fourth of 37 million individuals who filed tax returns in 2015-16.
Numbers such as these and the intent displayed by the government are inspiring confidence among experts about the rooting out of black money. Riaz Thingna, director, Grant Thornton Advisory said, “Amongst the various steps taken by the government since coming into power, demonetisation has been the biggest of the big-bang reforms.”
Corruption and black money were two crucial planks of Modi’s election campaign that led to the Bharatiya Janata Party’s victory in the 2014 general elections. It came as no surprise when the government’s first Cabinet decision was to set up a special investigative team (SIT) to unearth black money, headed by retired Supreme Court judge MB Shah. Since then, the SIT has made several recommendations to the government.
Besides PMGKY, the government has come out with two other schemes aimed to bring in undisclosed money. The Black Money Act, to bring in undisclosed foreign income and assets in 2015, saw declarations of Rs 4,164 crore, while another Rs 55,000 crore were declared under the Income Declaration Scheme, 2016, where the tax and penalty worked out to 45 per cent.
Several other steps taken over the three years, such as the passing of the benami transaction law, reforms in political donations, crackdown on shell companies and the limitations on cash transactions might help push generators of