Note ban not check black money: study

 Demonetisation may wipe out the stock of black money held in cash, but can do little about the ill-gotten wealth converted to assets like gold and real estate. The scrapping of high value notes does not prevent the future generation of unaccounted money, an industry study has said.

It has suggested several measures to check the menace of black money, including reducing discretionary powers to bureaucrats.

“Invalidating existing high denomination notes addresses the stock of black money but little to address future flows. Eliminating such flows will require further reforms like lowering stamp duty on property transactions, electronic registration of real estate, etc.,” said an Assocham study on currency demonetisation.

It said high denomination currency withdrawal is not without some inherent problems. “It is very difficult to separate black money from white money because distinction is not once-and-for-all. White money used to purchase something becomes black if the shop-keeper does not pay sales tax,” it said.

“Much of conspicuous consumption is paid for in unaccounted money, which, in the hand of the recipients can again become perfectly legal income. Benami deals in real estate and commodity markets make it difficult to trace the transactions to the ultimate buyer or seller. Even if the existing stock of illegal currency is wiped out by demonetization, it will be soon replaced as long as such points of contact exist between legitimate and illegitimate deals,” said the study.

It said ultimately, the problem of undisclosed incomes and wealth has to be tackled at the source. The government must reduce the opportunity and incentives for unaccounted transactions by narrowing the gap between the market value and the one fixed by the government agencies for different levies like stamp duty, etc.