India’s decision to withdraw Rs 2,000 currency notes will hit the black money in the economy and boost transparency in the system, the National Co-convener of the Swadeshi Jagran Manch said.
“The philosophy of demonetisation was not in tune with the Rs 2,000 notes,” Ashwani Mahajan, who is also a Professor at Delhi University, told Moneycontrol in an interview. “The withdrawal of high denomination notes will definitely have an impact on the flow of black money.”
The Swadeshi Jagran Manch is the economic affiliate of the Rashtriya Swayamsevak Sangh, which provides India’s ruling Bharatiya Janata Party with its top leadership and a committed cadre.
In November 2016, Prime Minister Narendra Modi’s administration had banned Rs 500 and Rs 1,000 notes overnight, leading to withdrawal of a large chunk of money from the system as citizens had to deposit the cash in their bank accounts. Critics contend that demonetisation did not meet some of its aims, like curbing black money and counterfeit money.
Mahajan is of the view that demonetisation led to several gains in the economy, including a fall in the currency in circulation as a proportion of GDP, more digital transactions, greater transparency, as well as a collateral hit to the counterfeiting industry.
Now, the withdrawal of Rs 2,000 notes — introduced in November 2016 primarily to meet the currency requirement of the economy — is the logical follow up to demonetisation.
“There is hardly any use of Rs 2,000 notes. That means this money is held in large quantities by those who are keeping it illegitimately,” Mahajan said.
Also read: Former RBI Deputy Governor Gandhi sees no need for notes larger than Rs 500
It is the job of agencies, like the income tax department, to look into those who have deposited a large amount of Rs 2,000 notes, he added.
On May 19, the Reserve Bank of India (RBI) caught everyone by surprise when it announced a four-month window for citizens to deposit or exchange the high denomination notes at bank branches. RBI Governor Shaktikanta Das told reporters on May 22 that the note had served its purpose. He did not mention black money.
Also read: Rs 2,000 withdrawal to boost fight against corruption, says BJP’s Gopal Agarwal
Tax collected at source on card spends a logical move
On the issue of the government seeking to bring those spending large amounts overseas using credit / debit cards into the tax net, Mahajan said he supported the move.
Every government over the world tries to widen the tax net, Mahajan said.
“How is it possible that a person spending Rs 7 lakh abroad is not earning enough to pay income tax?” he asked.
Therefore, it is logical for the government to ask those with international card spends worth more than Rs 7 lakh to pay 20 percent tax on the same, he added.
Credit / debit card spends abroad were brought under the ambit of the Liberalised Remittance Scheme, whereby all such spends would attract a tax of 20 percent. Following widespread backlash, the finance ministry exempted international spends of up to Rs 7 lakh from the tax.
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