We need wholesale administrative reforms: Harish Salve

He also spoke about the government’s move to include a clause tax laws to give a permanent window to tax unexplained income.Below is the verbatim transcript of Harish Salve’s interview to Latha Venkatesh on CNBC-TV18.Q: Demonetisation has been done before, would the petitioners stand a chance?A: You never know which way laws are construed and interpreted, but speaking for myself I don’t think it is much of a case. What is lawful currency is what is notified in the law by the Reserve Bank. The power to notify includes the power to withdraw a notification. What this government has done is it has demonetised one set of notes and substituted with some other kind of currency. The other point what they call expropriation, there is expropriation -- you are asked to put your money in a bank and say you are free to use your money the way you like. I don't consider that expropriation at all.Q: Kapil Sibal’s argument also appears to be that he is questioning the legality of preventing the withdrawal of savings. His point appears to be that there is no provision under the Reserve Bank of India (RBI) Act to place restrictions on withdrawals; in the previous demonetisation we didn’t have a restriction on withdrawals?A: There is a power under the RBI Act to give such directions to the bank if they are necessary in public interest. So, that power is sufficient to tell the banks out of the money is with you, do not permit at all. It is a direction to the banks; it is not a direction to an individual.Q: Then why would you think the Supreme Court even permitted to hear it?A: This is one point of view. The other point of view is what Kapil Sibal is standing for. So, let us see which way it goes.Q: What is your own view, not just about the constitutionality but about the economic and political sense behind this move?A: The economic sense as a measure is absolutely something beyond any controversy. In fact, I don’t think anybody has said that this is anything but superb idea.Q: The question appears to be whether the near-term pain outweighs the longer-term gain?A: What is the long term gain? If you can dent political corruption even for six months or a year, and then set proper systems in place -- this is the beginning, this is not the end. We now have to fix what creates corruption; we have to now fix what creates black money.Q: What should the follow-through steps be in that case? Should this have been the first step, should it have been the first legalising political contributions to political parties?A: Three big steps, political funding, -- the elephants in the room, nobody wants to talk about.Q: Which is?A: Political Funding.Q: Contributions?A: Contributions is one machinery for political funding, state funding, public corporate funding. A) Transparency B) to what extent then the state takeover for example state can takeover without enquiring any expenditure. There are so many different ways. You have to address the elephant in the room; nobody wants to talk about this.Q: Unless political funding is answered would you say that this is going to be a measure that will have only a short-term gain because fresh black money will have to be created because there is a source which needs it?A: Unless the pressure is for black money -- black money is created partly by greed and partly by necessity.The second is we need wholesale administrative reform including real estate salaries or those basis of power. These kinds of things has to be addressed. We have to now talk about all these big black elephants in the room.Q: I guess stamp duty on real estate would be another on your mind?A: There are so many things which we have to do. Real estate is the third big elephant in the room which we have to talk about. We are talking about real estate but again it comes back to the same thing of where do we generate the black money. Real estate was the destination of funds of corruption.Q: Let us assume that on December 31, we have got a set of a Rs 2-3 lakh crore cleaned out and destroyed. Is there anything in the scheme of things now to prevent fresh generation or are you saying that exactly the three steps you are talking about or the three elephants in the room that you are talking about need to be tackled or you will end up generating again?A: I think the shock of this measure will last for a while. The Prime Minister has been announcing that this is a beginning, there is more to come.Q: I will tell you of another step that is doing the rounds in financial circles, that there could be a tax on withdrawal of cash. Now all our money is with the banks. If withdrawal over one lakh or Rs 50,000 is taxed then probably you will disincentivise cash, does that look like a feasible step to you?A: Disincentivising cash is a good step. These are things which run on parallel track. One is we have to move towards the cashless economy. I have been watching TV programmes, they asked a neighbourhood caterer, he says I do business in cash. They said you have a bank account, why don’t you use a bank account now? He says, yes, I can but I think cash is better.Q: It is a very good commercial choice isn’t it? No income tax, no service tax, no merchant discount rate.A: Exactly, so it is a mindset.Q: Let me come to where we began, can the demonetisation issue in the Supreme Court be challenged as an inconvenience problem?A: Inconvenience may result in the court giving firm direction to direct the inconvenience.Q: Fundamental right to carry on your profession as a trucker for one whole month, two-three months.A: Nobody has a fundamental right to carry on a business with black money.Q: Not black money, the sheer ability to carry on the business may have been impeded by the inability to withdraw money. So will that stand in the court?A: That is a reasonable restrict in public interest, there is a section available.Q: We understand that the government is also contemplating adding a clause section 115 BEE to the income tax act so as to be able to tax the unexplained income, which they believe will be declared through the deposits that are coming in, they want to tax 45 percent plus a 15 percent penalty plus ask the citizen concerned to deposit 25 percent in zero coupon bonds, this is an exclusive that CNBC-TV18 got from government sources. Does this look like a good scheme and legally tenable?A: It is a sensible idea otherwise what will happen, the person who has deposited money and be treated it as unexplained income, you tax it at a 30 percent flat rate plus penalise plus profit rate. Instead of doing all that, you pay sufficiently and you get off the hook, that will be a good idea.