Quantitative Easing has become more common since the debacle of 2008– introduction of new money supply by a central bank often used to stimulate or kick start an economy or to plug the gaping holes in an economy due to bad or un-performing loans advanced by the banks. However, on this occasion we are witnessing a new phenomenon, such gaping holes in the banking industry are being plugged by the public at large and by the way, no marks for guessing as to who is suffering the most in the name of eradicating corruption and black money? Yes; it is the poor and down trodden of the economy who have faced the brunt of the economic surgical strike on their pockets. I stand 110% FIRM with any government against the corruption and black money – Period.
In a country, where in 2012-13 – only about 1% of Indian population paid taxes and less than 1% population declared their income over Rupees 1 lakh. Just 14 lakh people accounted for 75% of the personal income tax collection. This is also a litmus test for those who shout Nationalism from the rooftop! I ask the nation – where do all the nationalists disappear when it’s time to pay the taxes? How convenient to just ignore nationalism and cheat Mera Bharat Mahaan! Suddenly, the money is dearer than the Nation!
It is perfectly OK to expect the soldiers to sacrifice their lives whereas, the civilians screaming nationalism can’t even pay their tax dues let alone making additional sacrifice. Or are we dealing with Pseudo-Nationalists here? Perhaps, Nationalism is reserved for the minorities, neighbours and opposition only? Hard punitive actions to collect the taxes, reduce corruption and black money are welcome! However, what is questionable here is the proposed solution, its timing and of course the motives of the BJP government behind the entire demonetization of INR 500 & INR 1,000 Notes?
The Solution to Eradicate Corruption & Black Money: For the blind admirers of Modi & Co. and for those conveniently suffering with dementia, let me remind Then in 2014, BJP had termed demonetization as anti-people & anti-poor which would badly affect the poor living in remote areas of the country. The idea is un-explainable as to why this has happened… the measure is strongly anti-poor.
BJP spokesperson and now MP Meenakshi Lekhi in 2014 Now in 2016 said that the demonetization move will do no harm to the poor but some political parties have become poor. With its demonetization exercise, the government has taken its war against black money to a decisive level. BJP chief Amit Shah – November 2016 BJP spokesperson and now MP Meenakshi Lekhi in 2014 “The latest gimmick of the finance ministry to demonetize the notes, printed before 2005, is an attempt to obfuscate the issue of black money stashed outside the country…People with small savings and no bank accounts will be targeted. The present scheme does nothing to remove black money from circulation.”
When confronted why BJP opposed demonetization in 2014 – BJP Chief Amit Shah did what he does best – Lie! Zara bhi nahi kiya tha. koi ek jagah pe bata de. Agar congress aise kehti hai to safeed jhoot bolti hai (we did not oppose (demonetization) a bit, tell us any place where we did it. If congress is claiming such, it is saying white lie). Source Hindustan Times, New Delhi Updated: Nov 12, 2016 07:03 IST Although, the Poor Execution; Lies; Deceit & Hypocrisy of BJP is now wide open but the ardent admirers have shut their eyes; ears and mind and simply refuse to see; hear or think – It is logic defying!
BJP’s original stance of 2014 was correct and so was the outgoing RBI Governor – Raghuram Rajan, who recently commented: – “I am not quite sure if what you meant is demonetize the old notes and introduce new notes instead. In the past, demonetization has been thought off as a way of getting black money out of circulation …………… It is often cited as a solution. Unfortunately, my sense is the clever find ways around it. They find ways to divide up their hoard into many smaller pieces. You do find that people who haven’t thought of a way to convert black to white, throw it into the Hundi in some temples. I think there are ways around demonetization.
It is not that easy to flush out the black money. Of course, a fair amount may be in the form of gold, therefore even harder to catch. I would focus more on the incentives to generate and retain black money. A lot of the incentives are on taxes. source: click here
It is evident that he had clear disagreement with the government policy of demonetization and hardly surprising that he was quickly replaced with Urjit Patel an ex-employee of Ambani’s – the plot thickens here! After 25 years of working in the financial industry and consulting series of books, I have failed to understand as to how the corruption will be reduced by replacing INR 1,000 note with INR 2,000? All text books advise us to reduce the denomination of any currency to stop the corruption. I am about to retire but I am yet to see a currency note bigger than £50 / $100 / €500. So far, this question remains unanswered by the government. Please remember the money belongs to the people and not the government and not even the RBI.
Reserve Bank has its written promise on the note that they will pay the bearer upon demand irrespective of how it is earned. Therefore, any destruction of currency notes will help RBI to write-off its liability towards the currency notes that are now out of circulation as they will never be presented to RBI for payment.
The Political Timing: It is not possible to contest elections in India without stacks of cash that is used to influence the voters and state assembly elections. Seven states are due to go for assembly elections in early 2017. With the current demonetization policy, the opposition parties are clearly handicapped whereas, BJP has a clear and an unfair advantage. They had sufficient time to organize and plan their cash availability. A larger impact of this policy will be felt in Uttar Pradesh and Punjab where BJP is desperate to take control and Gujarat where it is facing anti-incumbency. As Modi, himself said, the old notes are now mere scraps of paper. Any politicians who have stashed money for use during election time are likely to be pulling their hair. Also, the move has elevated the PM’s stature as a leader who is serious about taking on corruption. His criticism of the alleged corruption of Mayawati and Mulayam Singh Yadav would be taken so much more seriously by the electorate.
Let’s not forget BJP has highest number of overseas supporters and donors as compared to any other political party and will be least affected. Demonetization does little to curb black money. At best, it could help destroy a very small part of the black economy that is managed through cash. Although, the underclass Indians will see no benefit of demonetzsation but they feel empowered when they see their direct employers scrambling to convert or destroy their hoard of cash. This feeling of empowerment goes beyond BJP’s traditional base and helps BJP to expand in non-bjp states. The entire decision is just politically motivated!
The Motives: Black Money Outside India: The intention of the BJP government to act (rather not act) upon the list of 627 Indians holding black money is swiss accounts, was exposed when the government refused to provide the full list to the Supreme Court and it was rightly reprimanded by the court for providing umbrella (protection) to the names on the list. The comments from the Supreme Court were scathing and extremely embarrassing for any government but then governments never ever get embarrassed – it is not part of their DNA.
Supreme Court – Had ZERO confidence in the government to deal with the matter. Slamming the Centre for holding a protective umbrella over persons stashing black money in bank accounts abroad, the Supreme Court on Tuesday ordered the government to disclose all their names in a sealed cover by Wednesday.
A three-judge Bench of Chief Justice H.L. Dattu and Justices Ranjana Desai and Madan B. Lokur rejected the argument of Attorney-General Mukul Rohatgi for a modification of the order directing disclosure of all the names. Don’t tell us to modify our order. We will not modify or change even a word in our order. You give us all information you received from foreign countries and we will decide the course of the probe. Why are you providing a protective umbrella to foreign bank account holders? You do not have to take interest in people having foreign bank accounts. The SIT will take care of it,” the Chief Justice told Mr. Rohatgi. “We will decide whether to order a CBI or an Income Tax probe or entrust the probe to some other agency. We can’t leave the issue of bringing back black money to the government. Source – The Hindu – October 29, 2014 01:33 IST
Liberalised Remittance Scheme (LRS): If the BJP government was so serious about the black money, then what was the rationale behind RBI increasing the LRS limit from USD 75,000 to USD 250,000 last year in Mar 2015? This scheme has allowed rich Indians to transfer up to USD 250,000 (2 Crore) in any financial year. Outward overseas remittances under the facility called liberalised remittances scheme (LRS) which allows residents to remit overseas $250,000 a year, has touched a record $4.6billion, up from $1.6billion a year ago – Source – Economic Times 17th May 2016, 19.44 hrs IST
This window allowed the rich to move sizeable amount of their funds to overseas sitting in the comfort of their living rooms and contrast this to chaos on the Indian streets. If the scheme had remained unchanged. There would have be an extra $6billion in the economy and perhaps there would have been no need to hurt the poor. It is evident from the above that the BJP government had and has no interest in bringing these rich Indians with black money to the books. So, we have established that the demonetization policy will not be effective in reducing the corruption and that the government is not serious about reclaim the black money as it would expose lot of close friends on the list. Then, what is the rush for the demonetization policy?
Stressed loans in India’s banking sector crossed $138 billion in June, central bank data reviewed by Reuters shows, an increase of nearly 15% in just six months that suggests a state clean-up effort will take longer and cost more than expected. The Reserve Bank of India (RBI) has set a March deadline for banks to fully reveal problem loans on their books. When lenders disclose bad loans, they need to take write downs that hit their bottom line and eat into equity. India’s nearly two dozen state banks, which dominate the sector and account for 88 percent of the bad loans, already need $27 billion in new equity capital by March 2019 to meet tougher global banking rules known as “Basel III”. The surge in stressed loans will mean banks will need even more cash to shore up their balance sheets – funds that must come from the government as their ability to raise money through stock or bond sales is constrained by low profits and poor valuations. – Source Reuters Tue Oct 11, 2016 | 9:40am IST
Recent amnesty by the Modi government did manage to secure nearly $10billion in undeclared income and now the poor and down trodden are scrapping through their piggy banks to plug the “Black Hole” created by umpteen number of greedy large industrialists who have conveniently either runaway or simply defaulted on their loans. Have you wondered as to why you don’t see any rich industrialist standing in the bank queues to exchange their money? The answer is simple. A. They have already send the funds overseas; and B. The rich industrialists will wait until the bank’s balance sheets are good enough with the deposits and they will start lending once again. Then you will see the likes of Mallya, Reddy; Rao; Jindals, Chandras and Ambanis (to name the few – the usual suspects) in the queue to borrow the hard-earned money of poor’s once again.
This entire scheme of making rich richer and poor even more poorer has been nicely camouflaged / wrapped up in the name of Nationalism. Thank you, Modi ji, for inventing a new phenomenon of Quantitative Easing by the Poor & Oppressed! CRONY CAPITALISM AT IT’S BEST! WHAT CAN BE SEEN IS A CLEAR NEXUS BETWEEN CAPITALIST AND POLITICIANS – THE PSEUDO NATIONLISTS!
By Arif Khan