Date: 21st November, 2016
Panelists: Dr.AnirbanDasgupta, FES, Dr.Prabhash Ranjan, FLS, Dr. Ravi Kumar, FSS and Dr.SoumyaDatta, FES
Rapporteur: Vasuprada Tatavarty
The objective of this panel discussion was to bring different perspectives from economics, law and sociology on the Indian government’s decision to demonetize Rs. 500 and Rs. 1,000 currency notes at the same platform. The event generated more than anticipated interest even though it was organised at a short notice with exams looming just around the corner.
Dr.Soumya Datta was the first speaker from the panel presenting the current macroeconomic scenario. He emphasized on the various aspects concerning implementation of this policy. The first aspect of his concern was regarding the disruption of economic transactions disproportionate effect on the agricultural and informal economy. Even though there is no black money in agriculture (Agricultural income is tax exempted in India), it will be one of the hardest hit sectors with the sowing season just about to begin. Dr. Datta recognised the difficulty in segregating cash into white or black money. Even if people just have two options, that is, to either deposit money in the bank or forgo it as a loss, the benefits are not so obvious to begin with. If the money is deposited in the bank, then it will be appropriately taxed but if it is foregone then the liability of the central bank cannot be written off unless the notes are destroyed. Therefore, the government cannot use the money for social expenditure as is being suggested. The speaker concluded with the prediction that the policy shall prove to be a disaster since the costs would far outweigh the benefits. Also, the credibility of the financial system would be adversely affected.
Dr.Prabash Ranjan started with some interesting figures to better assess the current exercise. About 14 trillion rupees was de-legalized with estimates suggesting that about 10-25% of it is in the form of black money hoarded in cash. This translates to about 3.5 trillion rupees. This 3.5 trillion is a miniscule 6-7% of the total black economy because a lot of black economy exists in the form of gold, benami property etc. This amount maybe insignificant in comparison to the total black economy but not in absolute terms since it amounts to 2.3 to 5.2 % of India’s GDP. The speaker posed the question that if 3.5 trillion rupees could be wiped out of the system, then why was this policy not worthwhile? The speaker believed that 10.5 trillion rupees will be tendered for exchange at banks and that which is not tendered can be presumed as black money in cash. This shall reduce the net liability of the central bank post December. It would reflect on the asset side of RBI’s balance sheet and any windfall profits that the central bank makes, will get transferred to the central government which would in turn give it more fiscal space. But the speaker noted that the grey area here was that the law on this front is ambiguous.
Though the speaker agreed that costs of transition were high coupled with a frequent change in govt. notifications, he believed that a fair assessment could be made only after December by considering the amount that would not been tendered back. The legal arguments of this policy are summarized as follows:
- What is the legal basis for the central govt to issue a notification and declare 86% of currency in circulation will no longer be legal tender?
The legal basis is provided by section 26(2) of the RBI act which states that the central government may declare with effect from a specified date, any series of bank notes of any denomination to no longer be legal tender. PILs have been filed in the Supreme Court over this legal issue stating that this section only gave the government a limited right to declare that a particular series of bank notes of a particular denomination shall cease to be legal tender. Therefore, it did not give the state the right to de-legalize one whole denomination. The government notification stated that bank notes of existing series (that is, the Mahatma Gandhi series) shall cease to be legal tender. Therefore, the speaker concluded that the govt’s action is consistent with the act.
- Does imposing restrictions on withdrawals have a legal basis?
Under normal circumstances, there was no basis for the government to declare how much a person can withdraw from his/her account but in the current situation of a cash crunch, this can only be dealt with by placing restrictions. Otherwise the very purpose of the policy would be defeated. Therefore, the speaker found it to be a reasonable restriction.
- Demonetized currency that has been expropriated by the government and this amounted to the violation of a person’s right to property.
Right to property is a constitutional right but anyone can be deprived of their property but only through an authority by law. Presuming that the government notification was law, even if there is an expropriation of property there was a procedure to get your notes exchanged. According to the speaker, the right of property was not violated. But that said for a person with considerable amount of cash holdings and no bank account, the government has effectively deprived such a person’s right to property. The courts would have to decide about such cases later.
Dr. Ravi Kumar began by discussing the very definition of black money. Since money accumulated by casual workers, housewives and different type of workers is being deposited in banks currently, a certain dis-aggregation according to the source should be made. The definition of black money, that on which tax has not been paid, depends on the process and the person because when a person with black money pays it to a person paying taxes, it is automatically converted to white money. Therefore, any estimates of black money are dependent on presumption. Bringing in the sociological perspective, the speaker gave the example of a maid who has saved up five lakhs over the years. The patriarchal nature of society does not allow her to open a bank account, since that will imply a disclosure to her husband who will choose to spend the money on alcohol. The speaker expressed concern whether the money the government will gain through this exercise will even be spent on health and education or any worthwhile social expenditure. Further, the speaker questioned the need of a policy that treats accumulation by housewives, casual workers, and that by corporates on par with each other. Drawing a parallel with the operation shock and awe conducted at the beginning of the Iraq war, the speaker felt that the purpose of this policy seems to be similar in nature. The speaker concluded by stating that like the Iraq war, this operation is also likely to backfire and called for a transparent system in which black money cannot be created in the first place.
Dr.Anirban Dasgupta, the last speaker on the panel, summarized the different perspectives presented by the speakers and drew a parallel between, the way the nation is being run in recent times and the patriarchal nature of decision making within a household. Next, he drew attention to the crowds standing in lines in an urban area in Delhi, visibly happy about the entire operation thinking that the head of the family is doing this for the greater good of the nation. The speaker ended the discussion by raising a pertinent question, that is, through what processes does this govt manage to retain the trust of the people and when will a moral outrage engulf this country that will see an end of this complacency?
This panel discussion was followed by two question-answer rounds and ended with a lively discussion which exceeded the allotted time by a wide margin.