Experts laud Modi's push to curb black money

This is a great move which will tackle black money out of the country, the only concern remains whether people depositing their Rs 500 and Rs 1,000 notes will be tracked or not, said Sanjay Nayar, CEO of KKR India.Below is the excerpt of the interview.Q: No one was expecting this decision to have been taken today. This was part of the SITs recommendations. This is something that the financial intelligence unit has written to the finance ministry. Very significant move there, your first thoughts? Kanabar: I would say it is a brilliant move for a very simple reason, that it wasn’t expected. There were some rumours in the market place which one had heard over the last one week or so but there was no widespread expectation nor much credibility being given to those rumours. I would say the one reason why this is quite critical is there is huge amount of cash which has been stacked away which is resulting in the parallel economy. Just to look at the fact that the parallel economy now has an ability to be brought into the mainstream and therefore really the true GDP being reflected is a very welcome move. I think this is a very very salutary move. As the Prime Minister stated there is going to be some amount of difficulty which one will experience, there will be queues outside banks, there will be people wanting to change whatever they need to but it is a very welcome move. Q: Some of the concerns and we are getting a lot of reactions on social media as well, people expressing concerns on the process and what it is finally going to mean, you believe that there is no cause for concern or fear? Kanabar: Every strategy is as successful or as unsuccessful as the way it is implemented. The process of implementation the way it is if we go by what has happened in the past would be that people would be free to go and deposit all the money that they have with the bank account. They would be asked to prove in a reasonable manner that this is all accounted money. So, long as that is proved, they will be issued alternate notes in lieu of the notes that they have submitted. Q: There was no suggestion by the Prime Minister there on whether this is accounted money or unaccounted money, he just said that this window will be available for you to swap and exchange whether it is at Reserve Bank of India counters, at the post office or at the banks. So, do you believe that that will cause serious problems if we now come down to where did you get this money from, is it accounted for or not accounted for? Kanabar: I would like to believe and I don\\'t think there is any doubt at all that the question will arise. Therefore to simply start fearing a witch-hunt may not be right. The Prime Minister has not articulated the entire process, that will I am sure come about when the revenue secretary, finance secretary whoever really is talking about that process. However just look at the perspective. It was on September 30 that the window for income disclosure scheme got over which means that if you have black money you were supposed to have disclosed it by that point of time. If therefore you now have money it has to be accounted. Let us assume somebody has got Rs 100 crore lying in cash which is unaccounted, there is no hope that such a person would really go to the bank and deposit such money because you would be asked the question as to what is the source of that money, he has no wealth, no income to support it. Therefore this is a part of clearing that mess on black money. Latha: At the moment we don’t have any idea as to what will be the action taken on people who come and deposit money, will a track record be kept, all we know is that you can hand in your cash Rs 500 and Rs 1,000 notes by the December 30 to the nearest post office or bank, thereafter it looks like it will become white money, but what your sense is this a great way to just launder and start white from January 1? Vaidyanathan: First of all we should not worry too much about whether it is going to get laundered or whether they will come out with the people who deposit money. I think the key and the most important thing is to really celebrate, because I have not heard announcement like this in a long, long time perhaps in decades. This is the surest way, because one estimate is that parallel economy in India is about 30 percent of the real GDP and can you imagine that amount of money coming back to the banking system, which was erstwhile in cash it is a big-big thing. Latha: As the banker when you are suddenly flooded with that level of deposits as a banker what will your first problem be? Well, you are not sure you will be tracked and therefore you are a little worried whether you will go and hand in all the cash and whether a parallel economy of sorts will be there between those who have the cash and are unwilling to turn it in. The only parallel for this is in 1977 when HM Patel, the finance minister of the Janata Party which came in after the emergency demonetise Rs 100 note, but that was Rs 100 in 1977, today it is worth will be almost something like Rs 10,000 note, so this clearly is way more seminal than anything that has been attempted in India. Do you think there will be a lot of demand for something like gold or something or do you think it will not go that way? Vaidyanathan: Two things one is that earlier people could have said that there aren’t enough bank accounts. Now with Jan-Dhan coming in, digital banking coming in, there is no reason for people to keep cash as a cash with themselves. Money could well be there and with the Jan-Dhan Rs 20 crore accounts being opened the whole of India is covered. The second thing is that the amount of tax collection that will be coming up which will fill up the government’s coffers, the form of fiscal deficit. I think this is got much larger implication, because the amount of tax collection will go up. The logistics of the country will improve. Maybe the India as an economy will become much more competitive. The benefits are going to be far reaching and this is probably the biggest we have heard in a long, long time. Shereen: It was the SIT that had recommended in a sense the war against cash. You had recommended that high value transactions in cash there should be severe restrictions and constraints the government today saying that it will now be rendering existing Rs 500 and Rs 1,000 notes illegal. Your first reaction? Shah: First reaction is the decision taken by the cabinet or the prime minister requires all congratulations. He has done a very good thing which requires all appreciation, because we have recommended that you cannot hold more than Rs 10-15 lakh cash, but now he has said all these cash will be required to be deposited in the bank and probably what further steps will be taken, I do not know. Shereen: At this point in time what the government is doing is tendering of all existing Rs 500 and Rs 1,000 notes illegal. The Reserve Bank will soon launch a new Rs 2,000 note as well as a new Rs 500 note. Do you believe that this is a significant move that the government has taken in the war against black money today as the head of the SIT on black money. Are you satisfied, do you believe that enough now has been done and in true earnest and in right earnest the government crackdown on black money stands complete today? Shah: I am fully satisfied with it because this is a bold step taken in the interest of the economy of the country as a whole. Shereen: What more would you like to see happen from here on? Shah: My number of other recommendations are there, but before that this step itself would control black money. Shereen: Do you believe that this is an adequate response in addressing the black money problem at this point in time and perhaps several of the other recommendations that you have made can wait. Do you believe that this adequately address the black money issue today? Shah: Yes, for the time being most adequate step taken by the government. This is more adequate and probably it will control lot of money accumulated in the houses of number of person. Shereen: This is a revolutionary step as most people calling it, but in your assessment what do you believe will be the larger implications as far as the economy itself is concerned? Shah: At least for the time being economy would be without unaccounted money for years to come. For accumulated and unaccounted money it will take months rather years. So the accumulated unaccounted money or the corruption money which are in the hands of few persons all will be required to be disclosed. Latha: The Supreme Court has struck down and prevented the government from doing anymore voluntary disclosure scheme (VDS). This looks like a voluntary disclosure scheme, do you think it will pass muster? Ranina: Well, this is not really a voluntary disclosure scheme. We have always had for the last 30 years a provision in the Income Tax law sections 69, 69a, 69b, 69c, which says that your unexplained expenditure or income is presumed to be the income of that year. So, what will happen in this case is that those who deposit the cash in their bank account after giving the identity, they will then be asked to explain how did they get the money, did they pay tax on it earlier and if they did not pay tax on it earlier and if it is unexplained it will be deemed to be the income of the current financial year 2016-17 and therefore the tax will be payable under section 115 BE at the maximum rate of 30 percent and no deduction will be given for any expenditure so there will be no interest, no penalty, but there will be I would say conversion of black into white and I think this is a very good step. Thereafter, I think people must be allowed to spend the money freely. Of course, they will spend money freely to debit cards, credit cards whatever the source they have. Latha: Disadvantage would be for the person who is turning in. He will have to pay tax for this year but the advantage is, he doesn’t have to pay any of the back taxes and no penalties. Ranina: No interest, no penalty and no prosecution. Latha: You got the rules in, can you tell us? Sharma: This is the time when we can say the sponsors of Digital India none other than our prime minister and I think this is the best move this country could have done to move and nudge. Everybody is on ring fence, there has been attempt by us, there has been money spent in, but this is the time for India to make the killing. Latha: You were speaking with your office, what are the rules, can you just turn in any amount of money and nobody will ask you where you got it from? Sharma: Well, I think banks are not going to ask that when you come with money, they are just going to make sure who is going to deposit in this account that is the ID necessity and after that what happens is that the state will bother about it that how this money come or not and the ultimate motive is less punishment, but more about getting this money from the unaccounted for to accounted for system.