Battling black money

After nearly two weeks of demonetisation, it is clear that its immediate effects have been more unpleasant than what the Government had perhaps anticipated. The informal sector in rural and urban India (proprietary and partnership enterprises employing less than 10 workers) accounting for 45 per cent of the GDP and 80 per cent of total employment, has been badly hurt by the withdrawal of 86 per cent of the value of currency in circulation. Rabi sowing and kharif marketing and harvesting operations have been hit. At stake are the livelihoods of over 400 million people. Not surprisingly, economists and market analysts expect GDP growth to contract by 50 basis points or more this fiscal — owing to a collapse in the circulation of currency in a cash-dominated economy. The point here is not to write off the strike on black money, but to ensure that this pain to ordinary citizens does not last long and — what’s most important — black money recedes into insignificance. The second cannot be achieved by a single stroke. It would require a multi-pronged approach that attacks not just the stock of black money (in this case, cash has been the target to the exclusion of other forms of hoarding such as property, bullion and financial instruments) but also its flow. Black money is an integral aspect of activities concerning elections, realty, mining and bullion and even capital markets. Without looking at such flows — the Centre has made a start in the case of coal mining and capital markets, by introducing auctions and amending double taxation avoidance pacts with Mauritius and Cyprus — we may soon be back to square one. It is crucial to note that black money flows are a product of cumbersome procedures and high taxes, and cannot be countered by policing alone. The Centre should not lose sight of the fact that an economy with less regulatory clutter is cleaner and more efficient, as it seeks to rewrite the rules in certain sectors.

Realising that black money will not disappear in a single stroke, the Centre has announced a drive against benami holdings. While demonetisation has already brought about a welcome correction in the distorted realty sector, a clean-up should encompass the shady secondary market. The Real Estate (Regulation and Development) Bill focuses on one aspect — time-bound, transparent regulations, which should reduce bribery and make it easier for bonafide entrepreneurs to enter the fray. But overhaul of the secondary market calls for a relook at income tax, stamp duty and registration laws across States.

In order to bolster popular support, it is crucial that the Centre implements electoral reforms. The loopholes in the Representation of the Peoples Act, which include not questioning donations under ₹20,000 and allowing exemptions to a candidate’s expenditure limits, among other things, must be addressed. The Centre should not be seen as getting after the ‘small fish’ alone. Only then will the surgical strike against cash hoarders seem worth it for all.

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