Demonetisation 2.0: ₹2000 notes RIP
The unlearnt lessons from the Demonetisation 1.0 of 2016
Throwback to November, 2016: Soon after the demonetisation shock had been administered at 8:00 PM on 8th November, 2016, I had posted the following article as in the “Notes” section of my Facebook account on 15.11.2016.
(https://www.facebook.com/kbs.sidhu/posts/pfbid0eqjLnKGgMsMpRVqdozmV2e3HNfHcPuxJcfBT3CbXpRWRW3LY9K1iQ4hTfS1jA4Q5l)
Since this link may not work for those NOT logged into Facebook, I reproduce verbatim the same below.
DEMONETISATION: Post-30/11 Scenario (What I published on 15.11.2016)
What after 30th December, 2016? Now that the cat is out of the bag everyone, to carry the imagery further, is clearly setting a cat amongst the pigeons. Most are now able to connect the dots, working backwards, but very few are venturing to speculate about the policies that shall be unveiled after 30/12/2016. Let me feign to have the audacity to do so.
Cash deposit post-8/11: This shall not be taxed at an effective rate that is less than 45%, which is what the persons opting for the Income Disclosure Scheme (IDS) that closed on 30/09/2016 were burdened with. The commentaries that these cash deposits can be disclosed with an income tax liability of a mere 30% are fallacious on two grounds. Firstly, they cannot be given a more favourable treatment than IDS volunteers. Secondly, and more importantly, these deposits are in the nature of deposit of effectively demonetised currency notes, which have become invalid and void for all other official purposes. They can easily be treated as a new or a different class within the meaning of Article 14 of the Constitution. Thus, a higher effective rate can and will be imposed qua these deposits. No doubt relief on deposits up to Rs 2.50 lakh may be given, but for the higher deposits a flat rate of something like 60% shall, in my opinion, emerge. In any case, I don’t expect it to be over 70%. There shall also be immunity against prosecution. Whether this is done through a CBDT Circular, an optional scheme of composition (compounding) or retrospective legislation (emphasis added) remains to be seen.
Cash Withdrawal post-30/12: The instant decision of the Government would become essentially a currency exchange scheme if some type of restrictions on withdrawal of cash are not imposed post -30/12. Irrespective of whether your bank balance comprises the post-8/11 cash deposits of Rs 1000/- and Rs 500/- or the previous “white” money, there is bound to emerge some type of a limit on cash withdrawal. The logic would be simple: why should you withdraw huge amounts of cash when all the payments, including to labour etc., can be more conveniently made through the regular banking channels. My hunch is that this amount would be about Rs 50 lac on annual basis per person, or pegged to a small percentage of the income declared for tax purposes. Gone would be the days when you could withdraw huge chunks of cash, treat it as cash-in-hand and re-deposit it into your account after months and years.
A natural corollary of this would be making holding of cash above the threshold limit an offence, leading to confiscation of the extra cash as well as prosecution. This would not be in the nature of Income Tax proceedings or prosecution but rather like the case of possessing more than the permissible bottles of liquor. Business through regular business channels would become the default settings and the Government would ensure that you do not have access to cash, accounted or unaccounted, to make illegitimate payments or buy assets like gold or dollar in currency that could conveniently and potentially form the medium for advancing illegal gratification.
I shall be waiting eagerly for the events post-30/12 to see how my “prophecies” fare.
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I leave it to the reader to judge whether the issues that I had flagged immediately following Demonetisation 1.0 were addressed. The consequences thereof. And, whether Demonetisation 2.0 will serve its intended objectives none of which have been enumerated except “clean note” policy. I still strongly feel that the focus now should be a limit on cash withdrawals from back accounts now that the “Digital India” initiative has a pan-India footprint. Failing to do so would be another opportunity lost.
In the meanwhile, do save a few of these Rs 2000 notes because they will steadily gain numismatic value, with the passage of time.
Good Night!
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Author: KBS Sidhu, retired in 2021 after 37 years of service as a Punjab cadre IAS officer.
Photographs are off the Internet.
((Your comments are most welcome— preferably on the App itself))
kbs.sidhu@gmail.com