Demonetization drama in India – by Gaurav Tyagi

— The banning of currency notes worth INR. (Indian Rupee) 1000 and 500 denomination done by Indian Prime Minister Modi during November 2016 was reported by the majority of global media as a big and bold step.It however, turned out to be just a political drama to show Indian public that Modi is serious about fighting rampant corruption in India.

Billions of Rupees have been drained over the years from the Indian state owned public sector banks by businessmen, in active connivance with politicians and senior bank management.

These corporate tycoons with political connections receive an amount far greater than their project requirement from banks.

They do it by jacking up estimated project costs in the initial business proposal report, which is used to apply for bank loans.

A large part of this excess loan amount is then used to bribe politicians as well as senior bank employees.

These industrialists often deliberately declare bankruptcy and claim they don’t have any money to pay back their loans.

Indian courts are notoriously slow. A case drags in courts for decades. Even then there is no guarantee that the litigation would get resolved.

Anyone with deep pockets and ‘political influence’ can delay the process even further so, nothing happens to such resourceful business magnates and they keep living in luxury.

A lot of them have even flown out of India and settled abroad, where they continue to live like kings. The government writes off these loans as bad loans.

Twenty nine government banks wrote off INR. 1.14 Lakh Crores of bad debts between 2013 and 2015. This figure is much more then what these banks conceded as ‘lost loans’ during the previous nine years. (1 Lakh=100000 & 1 Crore= 10000000)

Through this demonetization scheme, Modi ensured the cash flow from people’s homes into the coffers of these grossly mismanaged, highly overstaffed, corrupt government controlled banks.

Modi thus tried to cover up the incompetency, corruption and financial mismanagement of Indian Public sector banks.

This situation is so serious that Indian govt has not revealed the exact amount written off by it as bad loans so, that Modi’s claim of India being the fastest growing economy in the world does not get busted at the international level.

Modi’s assertion of unearthing Billions in black money (undeclared/untaxed cash) through this demonetization exercise is illogical.

Indian establishment would have unearthed a whole lot of black money in India, had it targeted approximately 800000 declarants in India, who while filing their annual income tax returns claim huge amount of money as agricultural income.

This category of Indians comprises a large number of politicians, movie actors, businessmen, bureaucrats, judicial, defense personnel etc.

These people claim huge amount of money as agricultural income since, all agricultural income in India is totally exempt from income tax.

The average annual income declared by these assesses comes out to be anywhere between 30-80 Crores INR on which they don’t pay any tax. (1 Crore=10000000)

Even the most fertile land in India with the most expensive crop cannot ensure such high monetary returns in agriculture.

According to these income tax returns, Indian farmers should be richest farmers in the world.

It’s crystal clear that the aforesaid income is not agricultural income instead it’s declared as agricultural income by these assesses, just to avoid paying taxes and converting their black money into white.

Political parties in India weren’t affected at all by this demonetization scheme.

These parties are highly organized, when it comes to distribution of money. Loyalty is formed in such groups due to the caste factor and greed due to personal gains.

They utilized their workers bank accounts for depositing large cash holdings by dividing the money into small denominations.

These party workers later transferred the money back to their parties in the form of political donations.

There is no clarity in the financing of political parties in India. Majority of them don’t even file income tax returns.

Modi keeps talking about honesty and removing corruption from public life yet, his own govt. filed an affidavit in August 2015 in the Supreme Court of India.

This affidavit opposes bringing political parties in India under the ambit of RTI (right to information) act.

“Just like anyone else, political parties can also deposit their cash held in the old currency in banks till 30 December, provided they can satisfactorily explain the source of income and their books of accounts reflect the entries prior to 8 November,”

The above statement is from the finance minister of India, Arun Jaitley.

Herein, Jaitley himself gave a very strong clue to all political parties in India regarding how to deal with black money.

Political parties took the invalidated higher denomination currency notes from people hoarding large amount of undeclared cash and made thousands of backdated receipts to show that these funds were received by political parties as donations before the cut-off date of 8th November, 2016. They thus, earned huge commissions in the whole process.

This is what the Indian revenue secretary Hasmukh Adhia told reporters during the time, when this demonetization process was on-going;

“If it is a deposit in the account of a political party, they are exempt. But if it is deposited in individual’s account then that information will come into our radar. If the individual is putting money in his own account, then we will get information.”

The Section 13A of the Income Tax Act, 1961 is what gives immunity to political parties in respect of their income from voluntary contributions received from any person.

Political parties used this loop-hole in law to put their black money on the table declaring that they received the amount from small donors.

Cash donations less than INR. 20,000 do not need any source. It is very easy to make backdated donation receipts since, all political parties in India print their own donation receipts.

A media group in India (India Today) conducted an undercover operation. Reporters of India Today approached various political parties’ offices in and around New Delhi, the capital of India.

These reporters pretended as businessmen possessing huge amounts of undeclared cash in Billions of INR.

All political parties were very accommodative to trade the money.

These parties, in exchange of around 30-40 percent commission, on the received amount, were ready to return the money back to these ‘phony businessmen’ in new denomination currency notes.

One political party NCP came out with a very creative idea. They told the reporter that NCP would create a fake Public Relations firm wherein, the reporter (posing as a businessman) could put any amount of money.

NCP’s politician told the reporter, that the party would show the expense in account books as hiring the ‘fake’ newly created Public Relations firm as having done their election campaigning work for the MCD (Municipal Corporation of Delhi) elections.

NCP would then make the reverse payment in exchange of 30 percent commission.  

It reveals that political parties in India made a mockery of this demonetization move.

Ordinary people were not allowed to make cash withdrawals of more than INR. 24,000 per week.

They were threatened by the government and the income tax department that all cash deposits over INR 2.5 Lakhs in an account would have to be explained to the authorities whereas, for Political parties there were no rules. (1 Lakh=100000)

Common people in India were harassed to withdraw their own money by standing in long queues, while political parties in India minted money by acting as money converting agents, in lieu of fat commission rates.

The whole demonetization process therefore, considerably enriched political parties, while harassing the common Indian citizen. The entire exercise constituted just an unnecessary drama.

Sources;

1. http://www.dnaindia.com/india/report-super-rich-defaulters-push-indian-banks-towards-collapse-2096523

2. http://indianexpress.com/article/india/india-news-india/bad-loan-financial-year-rti-rbi-bank-loan-raghuram-rajan-bad-loan-financial-year-rti-rbi-bank-loan-raghuram-rajan-1140000000000-bad-debts-the-great-govt-bank-write-off/

3. http://m.firstpost.com/india/demonetisation-kudos-to-modi-but-the-clean-up-drive-like-charity-should-start-at-home-3106174.html

4. http://m.firstpost.com/business/demonetisation-narendra-modis-crusade-against-black-money-is-doing-nothing-of-the-sorts-3104700.html

5. http://www.firstpost.com/sports/the-great-indian-irony-farmers-starve-while-politicians-agriculture-income-continue-to-rise-3360212.html

6. http://indiatoday.intoday.in/story/cash-mafias-black-money-india-today-expose/1/833683.html

7. http://www.firstpost.com/politics/pm-modis-black-money-hunt-why-protection-for-political-parties-and-harassment-for-common-man-3160578.html