By K Raveendran
The withdrawal of Rs 2,000 notes by the Reserve Bank of India and the brief window allowed to exchange the notes until September 30 will provide another opportunity for black money holders to launder their ill-gotten wealth just like its infamous precedent seven years ago did.
In fact, the surprise RBI move will provide an even bigger opportunity for black money holders than during Modi’s thoughtless demonetisation, which took the country and its economy back by up to a decade. Modi had tried to present his demonetisation as a surgical strike against black money, but it did not progress beyond a midnight pipedream as ‘tonnes’ of black money were whitened so much so that there were even allegations that it was meant to facilitate the conversion for the benefit of people in favour.
By RBI’s own admission, 99.3 percent of the junked Rs 500 and Rs 1,000 notes have returned to the banking system, indicating that just a miniscule percentage of currency was left out of the system, which meant that all the money in circulation got regularised. But all this in the name of fighting black money. In the final reckoning, just Rs 10,720 crore of the junked currency remained out of the regular banking system.
This was despite the fact that the government claiming to have put in place safeguards against black money conversion. Govt threats that transaction trails were being pursued by central and that those indulging in or colluding with money laundering or converting black money into white will not be spared. But barring a few search and seize operations at the houses of a few persons here and there and seizure of unaccounted cash worth a handful of crores, the action reached nowhere.
During the currency exchange programme of demonetisation, there were so-called serious curbs to limit transactions so that bulk conversions were difficult. It is a different matter that these had come a cropper. There were daily limits on both deposits and withdrawals, the latter making life miserable for lakhs of people who suffered pain by not being able to use their own hard-earned money for legitimate needs. Only Rs 4,000 worth of junked notes could be exchanged on any single day while withdrawals were limited to Rs 20,000 per week.
Compared to that the current RBI arrangement allows for up to 10 notes of Rs 2,000 notes per transaction, which straightaway means Rs 20,000. There is no need to link the transaction to the bank account, which means the person wanting to exchange the notes can go to any bank and complete the transaction and no questions are asked. This will facilitate multiple exchanges on the same day and is bound to be used as a licence to convert black money.
The reason cited by RBI to announce the withdrawal of the 2,000 notes sound specious, to say the least. It says the measure is in accordance with the ‘clean note policy’ which seeks to give the public good-quality currency notes and coins with better security features, while soiled notes are withdrawn out of circulation. According to the RBI, the majority of the Rs 2000 denomination notes were printed prior to March 2017 and as such are now at the end of their estimated lifespan of 4-5 years. Further, it says this denomination is no longer commonly used for transactions while there is adequate stock of banknotes in other denominations to meet currency requirements.
But this explanation does not answer why the notes issued before 2005, when new security features were introduced in the currency notes, continue to be legal tender and in circulation. This is particularly true of low denomination notes, which are widely used. So, there remains an unexplained reason for the sudden RBI decision.
The opposition parties have torn into the RBI decision, which they have no hesitation in attributing to prime minister Modi, saying it smacks of FAST (first act and then think), typical of ‘our self-styled Vishwaguru’. Former finance minister P Chidambaram added his bit saying he would not be surprised if the Rs 1,000 note, junked by Modi as part of his demonetisation gone awry, stages a comeback.
Congress leader Kapil Sibal tweeted a quote from Modi to the effect that “the magnitude of cash in circulation is directly linked to the level of corruption” and argued that in that event there has been a steep increase in corruption as the notes in circulation today amount to 30.18 lakh crore while it was only 17.7 lakh crore in 2016, prior to the Tugalqian demonetisation. (IPA Service)