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Today the central government is celebrating the first anniversary of demonetisation

announced by the PM on November 8th, 2016 as the Anti-Black Money Day. On


that fateful day, in an unexpected late-evening message on television, Prime Minister
Narendra Modi had announced the governments decision to pull out Rs 1000 and Rs
500 notes from circulation, making them invalid for most transactions starting that
midnight. The purpose of demonetisation, he said, was to fight against corruption,
black money, fake notes and terrorism, in this movement for purifying our country.

The single most important fact about any tax system is that it induces or inspires
widespread compliance. However, the estimates of the taxes paid voluntarily often
testify huge evasion and shortfalls in the revenue collected by the tax department. A
small part of this evasion consists of small amounts of unreported income by people.
The lower middle class and the higher middle class who, by their sheer size,
contribute a sizeable amount of the tax to the exchequers kitty. They are, by and
large, the salaried classes who have very little scope for tax evasion. However, the
miniscule part of the population, the rich and the nouveau rich, the business tycoons,
the politicians, the bureaucrats and their cronies, as beneficiaries of the corrupt
system, generates, sustains and thrives on the shadow economy. And the shadow
economy has emerged on the scale, which prompted the PM, ostensibly, to invoke
the harsh decision of demonetisation (not going into the merit of the scheme) due to
big-time cheating, making tax evasion a national sport.

The shadow world of capital flight, money laundering, tax evasion, bribery and fraud
is much more complex a phenomenon than what the protagonists of demonetisation
would have us believe. At the existential human level, it is a network programmed on
the basis of a value which is one dimensional: money making for the sake of money
making as one of the driving forces of globalisation and privatisation. Sophisticated
information and communication technologies enable financial capital to move from
one option to another, both locally and globally, in a relentless global search for more
lucrative opportunities. These technologies have led to virtual replacement of gold
and paper money by ever more abstract financial products, i.e. future options,
hedge funds, derivatives etc. The new global capitalism has also created, as a
corollary, a global criminal economy that profoundly affects national and
international economies and its politics. Drug trafficking, arms dealing, smuggling,
gambling, kidnapping, prostitution, counterfeiting are some of the most significant
operations of the global criminal network. Money laundering to the tune of hundreds
of billions of dollars is the core activity of the shadow economy through a network of
shell companies located as subsidiaries in tax heavens. The laundered money also
enters the formal economy through complex financial schemes and trade networks,
making it even more difficult to control national economic policies.

The main plank of Mr. Modis 2014 election campaign was to get back this black
money (Kala Dhan) stashed abroad, utilise it for the development of the country and
usher in an era of prosperity for all. Instead he resorted to demonetisation which had
no bearing on the global shadow economy and its corollary, the black money stashed
in tax heavens abroad, which has come to light from the leaks from time to time, i. e.
the Swiss accounts revelations, the Panama Papers and the most recently the
Paradise Papers. Panama Papers disclosures named several prominent Indian
politicians, actors and businessmen having offshore undisclosed bank accounts. 714
Indians are said to be part of the Paradise Papers list. As observed by the noted
human rights activist and lawyer, Mr. Prashant Bhushan, the government has failed
to act on documented cases of black money involving big companies and
industrialists. As the saying goes: it is foolish to cut the very branch one is sitting on.
It is an irony that the state has allowed itself to disintegrate through corruption of
the democratic process, as the political actors depend more and more on the shadow
economy controlled by big corporations and lobbying groups, which finance their
political campaign in exchange for policies which favour their special interest. The
pervasiveness of the enormous donation by industries and individuals to political
parties is akin to the ancient tributary system. Those who pay tribute are buying the
right to function as they wish, to be left alone, getting immunised from those with
official powers to harm them, a right to be treated with special consideration, to be
allowed to cross the kings terrain in peace. They are under the kings protection and
if anybody thwarts them or their activities, do so at their own peril.

The demonetisation exercise was a non-starter from the very beginning. There
were too many escape routes: conversion of two thousand Rupees of demonetised
currency into new one, per person per day, laundered forty thousand crors neat,
Exemption to buy air tickets and gasoline with the junked currency notes, ingenious
methods to deposit old currency into benami accounts and, of course the bankers
traders nexus helped 99.9 per cent of the demonetised currency in circulation back in
the banking system. As the demonetisation exercise started unfolding to be a dam
squib, the spin doctors of the government started offering band aid solutions to
prevent the press vary public from being swayed by the unfavourable coverage by the
media, projecting the aftermath of demonetisation look horrible.

Meanwhile there was no let-up in the harassment the public was facing. There were
sordid tales of harassment of people scrambling to convert currency in serpentine
ques, of lost lives. Millions of workers, country wide, lost their jobs due to cash
crunch leading to shut down of small and medium enterprises in the economy.
Worse hit were the farmers. Added to their discomfiture was the rebuff the
government got from the SC, who had warned of the impending riots in the country
over the issue.
Initially, the criticism centred round the fault lines in the implementation, leading to
painful and disruptive experience of the people. But, now the opposition was openly
challenging the credentials of the government, so much so Kejriwal had denounced
demonetisation as the biggest scandal in post independent India. He had alleged that
the motivation of the government to demonetise the currency was not to unearth the
black money as projected, but to tide over the liquidity crunch faced by the banks due
to whopping NPA to the tune of eight lakh crores of rupees. On the SC courts order
the government had filed a confidential list of 57 defaulters who alone owe the banks
Rs. 85000 crores in bad loans. The former PM Mr. Manmohan Singh had called
demonetisation a monumental disaster and its implementation as a case of
organised loot and legalised plunder. He had forecast a two percent dip in the
GDP and he stands vindicated.

With the Narendra Modi-led government gearing up to observe Anti-Black Money


Day to mark the first anniversary of demonetisation, former Prime Minister
Manmohan Singh has called upon his successor to graciously acknowledge the
blunder and said the country should be placed above all politics with an intention of
reviving the economy. Demonetisation has proved to be a catastrophic economic
policy. The damage it has caused has been multiple fold economic, social,
reputational and institutional. Slowing GDP is merely one indicator of the economic
damage. Its impact on the weaker sections of our society and business is far more
damaging than any economic indicator can reveal, Singh said, while pointing out the
immediate effects of note ban was small and medium enterprises sector. But the
finance minister has countered his appeal by saying that the former PM is unable to
grasp the moral rationale. It seems the entire exercise of demonetisation by the NDA
government was grounded in the dictum that it is necessary to destroy the economy
to build it.