Modi is running away with the game

Narendra Modi has grabbed the ball and is running with it while the Opposition seems absolutely clueless. In the three weeks since November 8, the Prime Minister has wrested the initiative even as the Opposition has been focussed on disrupting Parliament.

An unflustered Modi has reached out to the people directly at every opportunity and of course, through his monthly radio address. And the people seem to understand, judging by the fortitude they have shown in the last three weeks. That there has not been any serious violence outside banks or ATMs anywhere in the country seems to indicate that the common man has bought into Modi’s narrative.

Armed with this support, which is also reflected in the results of local body elections in Maharashtra and Gujarat, Modi now seems to be changing the narrative from fighting black money to using it to help the poor. Look no further than the interestingly named Pradhan Mantri Garib Kalyan Yojana (PMGKY), nothing but another income declaration scheme.

The PMGKY is a clever scheme that suggests the Government is thinking on its feet and reacting to data and feedback from the ground. The surge in bank deposits, particularly in Jan Dhan accounts which added ₹27,000 crore between November 8 and 23, and other innovative measures adopted to launder hoarded cash, clearly suggest that those holding unaccounted money are doing their best to get it into the system. The scheme taps right into this.

The PMGKY has to be seen along with the amendment to Section 115 BBE of the Income Tax Act, which deals with unexplained credit, investment and cash. The scheme allows declarants to enjoy half their unaccounted cash with no questions asked, with the other half to be paid as tax. Half of what the declarant gets to retain will have to be deposited with the bank to be locked in for four years without interest. So, why will someone accept these terms?

Simply because if she’s caught with unaccounted cash after the closure of the scheme on December 30, she will lose as much as 82.5 per cent of the stash thanks to the amendment to 115 BBE.

Over the last three weeks, the tax department has been sending out notices to assessees who’ve deposited over ₹2.5 lakh in their accounts after November 8. Trusts and societies have also been served notices to declare their cash balances as of November 8. The message is clear.

Assuming that ₹1 lakh crore is declared under the scheme (quite possible given that the last one that closed on September 30 resulted in over ₹70,000 crore being declared), the Government gets to pocket a cool ₹50,000 crore, which is about 14 per cent of the budget estimate for I-T this fiscal. Another ₹25,000 crore will flow into the banking system as free funds leading to a virtuous multiplier effect in the economy.

There’s already debate over whether the Centre can partake of any extinguishment of liabilities in the RBI’s balance sheet if a part of the ₹14.79 lakh crore demonetised does not return to the system. There are no such issues with the tax secured from PMGKY. Its packaging as a scheme for the welfare of the poor is politically astute. Of course, the money will be subsumed into the Consolidated Fund and there will be no direct link between the taxes collected and its use.

The point is that Modi seems to be several steps ahead of the Opposition in strategising and is now setting the agenda. We should not be surprised if in the coming Budget he cuts I-T rates or raises the threshold for middle-class taxpayers. Or if he decides to deposit a small sum into all Jan Dhan accounts. He will, of course, spin it out as a ‘reward’ for those who suffered yet stood by him.

The coming month is crucial for Modi. How much financial leeway he will have to play around with for sops to people will be decided by the inflows to the banking system and the PMGKY. Equally, the next one week will reveal whether the people remain with him as they queue up before banks and ATMs, which are running out of cash quickly, to draw their salaries.

The Opposition, meanwhile, will be happy disrupting Parliament.

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