Was Demo biggest weapon with Modi?

Rajat Mohan,   Senior Partner, AMRG & Associates

By Rajat Mohan

Our economy is getting rusted due to vices like corruption, black money, black marketing, fake notes, nonpayment of taxes, hoarding etc. To clean up the age-old mess, in 2016 Modi Government decided to cancel the Legal Tender Status of Rs.1000 and Rs.500 denomination currency notes. Reserve Bank of India reported in its Annual Accounts that specified banknotes of the estimated value of INR 15.28 lakh crore have been deposited back in the banking system which accounts for  99% of banned notes.

Was Demonetisation a success or a failure? Indian luminaries have decades to write about this historic event, but businesses need to step back and see this demonetization as part of a larger plan to eliminate the vices in our economy in a march towards making India then next superpower. 

It is believed that DEMO is just one of the weapons in the armoury of this government and there could be many more to see in the next 5 years few of which needs to be unpacked:

The digitalisation of land records

Land in urban areas are very expensive and also has the potential to consume truckloads of cash. The government may try and digitalize entire land records in India, weeding out Benami landowners. Though revenues from Land is a state subject under the constitution of India, the government may find a way out to digitalize and formalize PAN India Land revenue authorities under a single common portal on the lines of GST.

Through ‘Digital India Land Records Modernization Programme (DILRMP)’ GOI is eyeing to develop an appropriate integrated land information management system across the country under which all land records are computerized along with respective ownership details. This system provides inter-connectivity among revenue offices, connectivity of sub registrar’s offices with revenue offices and real-time updation of revenue offices records.

Digitalization and automation can help create algorithms to detect and prevent Benami transactions based on the money trail and title holding. Instead of the current system, which penalises Benami transactions upon detection, block-chain adoption and automation could be used to prevent such transactions. Further, past Benami transactions could easily be investigated if an immutable digitalized record creation system is adopted.

Interlinking of different IDs

In the coming years, we can see “One nation one Identification”. Keeping the digitalization and automation of information in mind Modi 2.0 may interlink different identity proofs issued by different authorities to concentrate entire information in a single server through a single identification card. For this QR code-based, Aadhaar may be used as a central data bank linking PAN India identification proofs. On an immediate basis linking process may be effected for Aadhaar, Election Card, Driving License, Ration Card and Passports.

Restriction on Cash holding

Although cash transaction rules are enacted under Income Tax laws, whereby one could not pay or receive money in cash over a certain specified limit. But to eliminate black money & corruption government may enact new laws around cash holding. A general cash holding of 25% of monthly income should be permitted to every person filings income tax return subject to a minimum limit of INR 1 Lacs per person. The government may impose such disclosures in income tax returns and tax audit forms so that responsibility could be shifted to auditors.

Temporary sealing of Bank and Private Lockers.

In December 2018, Income Tax Department unearthed at least 30 Benami lockers and recovered Rs. 10 crores as part of an ongoing raid at a private vault in Old Delhi’s Chandni Chowk area.  Government has the powers to make search and seizure of any suspected place to unearth tax evasion, however, it is impossible to find all such lockers on short notice. 
The government may implement a “Policy temp seal” whereby all the lockers would be temporarily sealed under an order of the president. Whenever the owner wants to operate the locker and get the seal broken then such locker shall be opened by bank officials in the presence of the owner. This process shall be captured in a CCTV footage and shall be later submitted to jurisdictional tax officer. 

Conclusion

To curb the activities of cash transactions and Hawala transaction tax department is undertaking search operations to align the economy with Modi’s vision of ‘Clean India’. However such operations are quite expensive and restrictive whereby one and many go unchecked. Thereby implementation of above weapons is the need of the hour. It may be highly unpopular to take such humongous steps, but our political honchos are determined to take such unpopular and unconventional decisions for the sake of unearthing black money.

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