'We Knew Our Demonetisation Proposal Had To Be Accepted'

Anil Bokil, associated with Pune’s economic think-tank ArthaKranti Pratishthan, was one of the first few to recommend to the then Gujarat Chief Minister Narendra Modi on the demonetisation move. Bokil’s NGO has also readied a template which he says will stop the generation of black money in the system. Bokil spoke to BW Businessworld’s Suman K Jha.

Excerpts:

When did you realize that the government would accept your recommendations on banning Rs 500 and Rs 100 currency notes? Did you have a meeting with PM Narendra Modi on this?
Very since the ArthaKranti Proposal came into being in 1999, based on our study, we were confident that, Government will have to accept it. It was only a matter of time. We presented the entire ArthaKranti Proposal to Narendra Modiji, then Gujarat CM, in July 2013.

Apart from banning these currency notes, what more measures need to be taken to unearth black money across the country?
Implementation of the ArthaKranti Proposal in totality along with a well designed Amnesty scheme.

ArthaKranti Proposal

1. Withdrawal of existing Taxation System Completely* (except Customs/Import Duties)

* All Central, State and Local Government Taxes – Direct as well as Indirect

2. Every Transaction routed through a bank will attract a certain deduction in appropriate percentage (say 2 %) as a Bank Transaction Tax [BTT] [A Single Point Tax Deducted at Source]

• This deduction is to be effected on receiving/credit account only

• This deducted amount will be credited to different Government levels like Central, State and Local (as say, 0.7 %, 0.6 % and 0.35 % respectively)

• Transacting Bank will also have a share (say 0.35 %) in the deducted amount as the bank has a key role to perform

3. Cash Transactions will not attract any tax

4. Withdrawal of High Denomination Currency (say above Rs. 50)

5. Government should make legal provisions to restrict Cash Transactions up to a certain limit (say Rs. 2,000)

This means, Cash Transactions above this limit will not enjoy any legal protection.

The present Narendra Modi government, in the last two-and-a-half years, has initiated a number of measures to unearth black money. How do you evaluate them?
We observe that this Government’s initiatives (like Jan-Dhan Yojana, Direct Cash Transfer, linking of Post-Offices with Retail Banking, Payment Gateways etc.) are in tune with the effort of making Financial Transactions more transparent which certainly result into effective checks on circulation of black money in the economy. However, we also believe, that generation of black money can be stopped by implementing the ArthaKranti Proposal in totality.

Do you think the introduction of Rs 2000 currency notes is part of the measures to curb black money or could it also result in a problem?
In our opinion, it is a stop-gap arrangement put in place to address the likely severe liquidity crunch due to sudden withdrawal of about 85 % of monetary value in the form of 500 and 1000 rupee currency notes. To absorb this shock, 2000 rupee notes may have been introduced which would replace 1000 rupee currency value in half the number and in shortest possible time.

Common people are facing a lot of hardships due to the present situation. Do you think this was avoidable?
We presume this decision has been taken in view of compelling reasons (acknowledging signals of threat to internal security due to counterfeit currency supply to terrorist outfits in India). This decision could have been executed in a more smooth way as proposed in the ArthaKranti Proposal Transition Plan outlined below:

• As a part of transition, a clean Amnesty scheme to be announced in which all demonetized currency money to be deposited in individuals’ accounts

• These deposits beyond a certain limit, to be converted in Government Security Bonds of designed maturity periods

• These deposits will attract a one time tax at progressive rate

Phase 1: First Six Months:

• Withdrawal of Central Government Taxes like Personal Income Tax, Central Excise, Service Tax etc.

• Withdrawal of 1000 rupee notes

• 500 rupee notes to be supplied in calculated additional numbers

• In lieu of the withdrawn taxes, a Fractional Bank Transaction Tax, say 0.55 % to come into effect. (Breakup: 0.5 % to Central Government account and 0.05 % to the Banking System for setting up required Tax Collection Mechanism).

Phase 2: Next Six Months:

• Monitoring revenue generated through Bank Transaction Tax

• Negotiating with / Counseling State Governments to withdraw All State and Local Government Taxes assuring say around 25 % rise in their current tax revenues via their share in the Bank Transaction Tax, based on actual Bank Transaction Tax figures

• Fixing the Bank Transaction Tax Percentage to generate required Revenues for Central, State and Local Governments in lieu of withdrawn taxes

• Withdrawal of 500 rupee notes

• 100 rupee notes to be supplied in calculated additional numbers

Phase 3: Next 6 Months:

• Complete transition is put in place and monitored meticulously

• Withdrawal of 100 rupee notes

• 50 rupee and lower value notes to be supplied in calculated additional numbers

What other measures would you prescribe for the betterment of the country and its national economy?
Apart from Systemic Correction on revenue side, ArthaKranti puts forth, two proposals on expenditure side: Empowering Democracy and Blanket Social Security. These Proposals are outlined in the PowerPoint presentation available at: http://www.arthakranti.org/download/presentations