Lift the veil of secrecy

The primary aim of the demonetisation exercise was to tap black money. To mark the last day for depositing the demonetised notes, on December 31, 2016, the Prime Minister, in his address to the nation, fully acknowledged the great hardship suffered by common people due to the serious delay in making the new currency notes available in the banks, ATMs and rural areas, and thanked them for the faith they reposed in him in spite of such hardships. He announced a slew of financial sops to the marginalised and farmers. While he made a passing reference to black money hoarders being on the run, and about collusion on the part of a few bank and government officials, he made no mention of specifics like the government’s estimates of black money and counterfeit money unearthed by the demonetisation. Perhaps it was too early to arrive at such estimates with some precision.

Subverting the system

Newspapers were full of reports of some sensational cases of hoarding of new currency notes, within a few days after the demonetisation, even as common people could not get more than one, and then two new ₹2,000 notes even after standing in queues for hours. As of December 10, it was reported that a stash of ₹242 crore in new currency notes had been uncovered. Cases have to be investigated with the greatest speed as top priority and persons involved should be given exemplary jail terms. The investigation should reveal how the new notes, which were in such short supply, reached these hoarders in record time. The Prime Minister or his representatives should have given some details about the likely time frame for strong action against those caught, including hoarders and corrupt officials, to reassure the common man about the government’s seriousness in dealing with black money.

There are two other aspects of demonetisation on which clarity is required. One is the status of political funds, and the other the status of donations/offerings made to temples and religious institutions, through the so-called temple hundis.

Political donations as conduit?

Political party funds are exempted from income tax, though parties are required to maintain books of accounts, and file income returns. Moreover, they are not required to keep any details of the source of funds if the individual contributions are ₹20,000 or less. It is well known that almost 90% of the funds of major political parties are of this nature.

The Union Revenue Secretary reportedly said on December 16 that political parties can accept cash donations even after November 8. The Finance Minister, however, said a couple of days later that political parties cannot accept donations in old ₹500 and ₹1,000 notes. The question, thus, is whether parties did accept cash donations in demonetised bills after November 8. If so, it could have been a great device for converting black money into white in the hands of unethical political parties by breaking down huge contributions into a number of small ones of ₹20,000 or less; an unethical political party could even receive cash contributions after November 8, but show in its books that the money was received before that date.

Disclosure of figures about cash donations received by political parties before and after November 8, and the amount deposited in the banks by December 30, and whether any part of it will be taxed, would help in an informed debate. It may be noted that all political parties have taken a stand that they are not subject to the jurisdiction of the Right to Information Act.

It would also be useful to find out the amount of cash deposited by temples after November 8 purportedly received as donations to know how funds so received will be dealt with (so as not to enable conversion of black money into white), and whether any part of such collections would be taxed.

Keeping the public informed

Even if the entire ₹15.4 lakh crore of demonetised currency is received back in the banks, obviously a part of it would be black money (i.e. money that hadn’t been taxed). The government should ask the Income Tax Department to finalise suspicious cases within six months, if necessary by putting aside all routine work relating to regular assessments, etc. for the time being.

Before the demonetisation exercise, it was reported that the Income Declaration Scheme, which ended on September 30, 2016, has fetched ₹67,382 crore of undisclosed income and should result in tax and penalty of ₹30,322 crore, to be paid in two equal instalments on November 30, 2016 and September 2017. The government should reveal how much tax was actually received by November 30 out of the estimated ₹15,161 crore.

The Pradhan Mantri Garib Kalyan Yojana provides a window from December 17, 2016 to March 31, 2017 for holders of black money to declare their assets. Fortnightly data of remittances to this fund should be released for information of the public.

Most people think that the fountainhead of black money is the provision that political parties need not disclose source of contributions of ₹20,000 or less. Support for the Prime Minister would have soared sky-high had he declared that from the midnight of December 31, all cash donations to parties were to be banned. But he missed the opportunity, and now it cannot be done even if one wants to until the upcoming Assembly elections to five States are over.

K. Padmanabhaiah, an IAS officer of the 1961 batch, served as Union Home Secretary and is the Chairman of the Court of Governors of Administrative Staff College of India (ASCI), Hyderabad.

Source: The Hindu, 25-01-2017