Anti-black money drive is paying off
If voluntary compliance doesn’t work, there must be a credible deterrent like forced disclosure
is “excess”? Circa 2000-01, India had a cash/ GDP ratio of 10.5%. With digitisation and use of non-cash instruments, that should have declined over time. Instead, in 2014-15, it increased to 13%. Clearly, something more than that useful transaction function was occurring.
In India, post-demonetisation, the figure has dropped to a little less than 9% in 2016-17. Why is that undesirable? On November 8, 2016, the value of ₹500/1,000 notes (outside the banking system) was ₹15.44 lakh crores and by June 20, 2017 (latest data from RBI), almost all had returned to the banking system. There can only be limited deductions. More and more people, and let’s not forget sharp increase in Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts, have started to use electronic modes. More importantly, some people with black cash have recognised, this time the threat is credible. Did you notice figures published by the Swiss National Bank? Such data has been in public domain since 1987? Funds directly held by Indians with Swiss banks have been declining. We have data till end of 2016 and the absolute number is now one-third of what it used to be in end-2006. Correlating an event of November 8, 2016 with this decline would be crazy. But that is the point. November 8, 2016 wasn’t an isolated decision hanging in thin air. It is part of a process and only one instrument in a larger package designed to attack black.
Do you remember a scene from “Mujhse Shaadi Karogi”? Amrish Puri has a dog named Tommy. Parts of the pug are black. When it is replaced with another pug without black marks, the replacement is painted black. But the paint washes off and the replacement Tommy bites Puri. In a reversal of sorts, just because black has come into the banking system, black marks don’t wash off. After subsequent scrutiny, black continues to bite. Operation Clean Money was launched on January 31, 2017. Based on this, 18 lakh accounts (with ₹2.89 lakh crore of deposits) are suspect because they do not have transactions in line with historical trends. Use of data analytics added another 5.6 lakh suspicious accounts. Between November 2016 and end-may 2017, IT department investigations discovered undisclosed income of ₹17,526 crores and led to seizure of ₹1,003 crores. 3 lakh registered companies have had suspicious transactions and 37,000 shell companies have been identified. 2.09 lakh companies have been struck off the register, trading has been suspended for 163 companies and 1.06 lakh directors have been identified for disqualification.
Till 23 May 2017, 400 benami transactions have been identified and 240 provisional attachments have taken place. Indians travel abroad and in November 2015, December 2015 and January 2016, spent around 40 million US dollars a month on foreign travel. In November 2016, December 2016 and January 2017, this shot up to more than 200 million US dollars a month. Credit card bill payments in cash (more than ₹1 lakh in cash) also jumped. No doubt these transactions will be scrutinised. This is involuntary compliance, though that expression sounds like an oxymoron. In the realm of voluntary compliance, Income Declaration Scheme led to declaration of ₹67,382 crores between June 1, 2016 and September 30, 2016 and searches and seizures between May 2014 and September 2016 yielded₹56,378 crores. Because these numbers were substantial, Pradhan Mantri Garib Kalyan Yojana yielded ₹4,900 crores, from 21,000 declarants.
In the broader anti-black package, of which, November 8, 2016, was one element, preference should be on voluntary compliance. But if that doesn’t work, there has to be a credible deterrent of forced compliance. Unlike in the past, the deterrent and threat are now credible. Where is the black money? The answer is blowing in the wind, but one has to know where to look.