Demonetisation, a success

S Kalyanasundaram | Updated on July 14, 2021

With ED turning the screws, the game has just begun

It is reported that the Enforcement Directorate (ED) has filed a charge sheet against a business family before a special court in Hyderabad accusing the family members of allegedly depositing unaccounted cash of ₹111 crore in their bank accounts soon after the announcement of demonetisation on November 8, 2016.

They also helped others to convert their black money by buying bullion from them, it is reported.

Forty others have also been charge sheeted in the case and all for charges of money laundering. The ED reports that 5,911 fictitious sale invoices attributing fake sales during the short relaxation period between 8 p.m. to 12 p.m. were created and ₹111 crore deposited in their bank accounts.

After demonetisation the RBI reported that ₹15.31 lakh crore of demonetised currency notes had been returned to it.

When demonetisation was announced on November 8, 2016 declared the old ₹500 and ₹1,000 notes accounted for ₹15.44 lakh crore.

This return is clearly far higher than the up to ₹10 lakh crore the government had expected.

This has given enough ammunition to the opposition parties to blame the government and to term the entire exercise of demonetisation as a failure and an ill-conceived one.

But the present move by the ED proves that the game is not over and in fact has just started.

The critics of note ban must ponder now. The government is now having all the material evidences to initiate action on the tax evaders.

The RBI recently asked banks to preserve the CCTV recordings of their branches and currency chests from November 8, 2016, to December 30, 2016, to assist the enforcement agencies.

Objectives fulfilled

The demonetisation drive’s objectives included weeding out fake currency notes; prising out unaccounted wealth; and curb terror activities and drug trafficking.

The first objective of identifying and eliminating counterfeit note has been achieved as all the notes have been verified for genuineness.

It is a different matter that there can be counterfeit after the new series.

The second objective of weeding out unaccounted wealth is a work in progress.

Terror activities and drug trafficking too has been curbed to a large extent, as demonetisation had cut off their financing. But this can have only temporary effect, as again they will spread their network with the new currency notes.

Surge in tax returns

The data on Income tax returns filed also confirms the success of the demonetisation of the scheme. According to I-T Department data, number of income tax returns filed grew 6.5 per cent in FY 2015 to 40.4 million.

It surged 14.5 per cent in FY 2016 and then jumped 20.5 per cent in FY 2017, the year of demonetisation.

In the subsequent year FY 2018, income tax returns filed surged further 23.1 per cent to 68.7 million.

All these returns provide enough data to probe further on unaccounted money and money laundering.

This shows that many people have now come within the tax net and the money, which was under unaccounted transactions, has come to the mainstream now.

There is only a thin line of difference between tax planning and tax evasion. Many people evade tax and say that what they do is only tax planning.

All in all, the government should be recognised for the bold initiative taken four years back.

Describing the scheme as total failure is simple politicisation and uncharitable.

But this does not mean that we did not have hardship during those days. But the temporary pain undergone by the people will be in the larger interest of long-term gain to the economy.

The writer is a Retired Banker

Published on July 14, 2021

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