I was shocked by the article by Swaminathan Aiyar (SA) in
the Times of India today.
I read his column every Sunday and respect him as a serious
commentator on economic policies.
Two numbers he quotes are worth repeating here. Rs.
Fifteen trillion (also known as Fifteen lakh crores of Rupees) is the value of
Rs. 500 and 1000 notes banned by the Prime Minister’s (PM’s) announcement on
Nov 8 2016. The second number is Rs. 640 billion rupees (aka Rs. 64,000 lakh crores) is the value to
which “Jan Dhan[1]
accounts have suddenly swollen”. SA
speculates on what the Govt. could do with any part of the 15 trillion worth of
notes that are not deposited in bank accounts. He “suspects” that as much as 3
trillion worth would not be deposited. This is gain for the RBI/Govt. because
what is not deposited would become trash, and the banks would not have to issue
new currency to replace it.
Now, he comes with this
amazing statement that the PM could emerge triumphant by combining “imaginative
accounting, populism and good economic sense”. How? – by depositing Rs 10,000
in each Jan Dhan account; as a gift from the Govt? Some regional parties all
over India would be turning green with envy! They could never buy vote banks by
using Govt. munificence on this scale! There are over 250 million Jan Dhan
accounts!
Either SA is kidding, or
he suspects that the political temptation to do this would be very high. I am
sure that he would have surely read at least summaries of the Economic Survey
2015-16:
which says that India should increase the tax/GDP ratio. If there is Rs. 3 trillion bonanza, a fraction of that would clearly be income tax that should have been collected but was not. Another fraction would be loot extorted by corrupt officials and politicians. So, SA, you want this to be used for buying votes?
What happened to your enthusiasm for building
infrastructure? Can’t we use the bonanza to fund mass transportation systems?
Can’t use it to improve the quality of our education and health services? Or,
promote the switch to alternative sources of energy and cut the annual oil
import bill? How all this should be done without introducing inefficiency and corruption
endemic in every major Govt. effort is worth discussion, but obviously, there
are ways of doing that.
I am also concerned about the crores of people who stood
in the queues in front of banks. Many of them were honest citizens who had come
to deposit their own money. However, there were also millions in those queues
who were earning 5% or something like that for depositing someone else’s money
into their own bank accounts. The goondas who had hired them have probably made
15 to 20% by acting as wholesalers for the operation. Those who stood in the
queues were getting training in making easy money through whitewashing other’s
ill-gotten wealth. They are not going to forget this training as well as the
“working relationships” they developed with the goondas they worked for. They
will look for new “opportunities” to make easy money. Many will go far, as far
as doing some foreign travel on behalf of hawala operators!
Let me ask my concluding question – to what extent will
the bonanza be reduced because of the great big white washing machine that the
currency ban has created?
[1]
Bank accounts promoted by the Govt. for purposes of financial inclusion. Many
of them were zero balance accounts before the ban on Rs. 500 and 1000 currency
notes.
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