Nagpur CAs give an insight into Modi government’s bold decision of demonetisation

Radhika Dhawad | Nov 9, 2016 21:57

Modi government's decision of demonetisation
CA TS Rawal

At a panel discussion at the Nagpur branch of The Institute of Chartered Accountants of India, noted Nagpur chartered accountants – T S Rawal and Kailash Jogani – along with other chartered accountants spoke about Prime Minister Narendra Modi’s decision of doing away with Rs 500 and Rs 1000 currency notes on Tuesday, November 8. These chartered accountants gave an insight, to the people present, into Modi government’s decision of demonetisation and also spoke about the possible effects of the same on the Indian economy.

People with a lot of black money (especially politicians) are going to be affected to a certain extent. There’s a possibility of infusing most of the black money into mainstream economy.

Politicians hold a lot of money. A lot of black money floats in the market during elections. Raghuram Rajan during 2014 elections had said that the cash to GDP ratio was suddenly very high. This is going to impact the UP, Punjab and Goa elections.

Politicians won’t be able to splurge money during elections by providing alcohol and bribe to potential voters.

Middle class people or genuine taxpayers who are worried about the scrapping of denominations should relax. The impact is only on certain sections of the society.

In one stroke, the people who had been encouraging fake currency are suddenly out of business as they don’t have any means at the moment to make similar currency notes. But, we can’t ignore the fact that fake currency, which is already infused in the system, still exists.

The new currency that would be floated in the market would have higher security features, unlike the previous currencies.

Theoretically speaking, nobody’s losing money due to this scheme. But, on a practical note, we know that 30-40% of the money would still go out of the system and evaporate.

Earlier, demonetisation took place in the year 1938 where Rs 10,000’s note was scrapped. Then, 39 years later in 1977, again demonetisation took place. Again after 39 years (in 2016), the same has happened.

In the long run, the same people who stored a huge stock of money in the form of cash are the people who buy gold. At the moment, the government is robbing the rich. They are taking money away from filthy rich people. So, this scheme is actually a de-motivator to buy gold.

The money that is used for buying luxury cars, gold, foreign travel and other premium high-end materials, is being taken away to a certain extent in the short run from the affluent section.

The best part is that the money is being removed from the system before the implementation of the GST (Goods and Services Tax).

Money laundering is a bigger concern over tax evasion today. Terrorists are being funded with huge amounts (back money). Demonetisation will also discourage illegal trading of arms and drug peddling.

This scheme was supposed to be introduced in February 2016 but due to some reasons, it got delayed till November 2016.