Nation Building through Demonetisation

Everyone across the globe – Indian, NRI and Foreigner is aware of PM Modi drive of demonetisation so I’m not going to explain what he did and how he did it. I’m a Non-Resident Indian and have a very little to No impact on my day-to-day life due to living outside. The only impact I have is my phone is full of Demonetisation humor, courtesy Whatsapp!

Being Indian, living in Singapore, it gives me an opportunity to think, compare and reason out how demonetisation drive will help the Indian economy when I compare it with Singapore.

Some facts to begin with –

• In Singapore – 100% of the working population pay their Income Tax.
• In India – 1% of the working population pay their Income Tax.

* Working population here includes both businessmen and Salary professionals.

• In Singapore, we earn up to 1% interest on bank deposits and we pay up to 2% interest on loans.
• In India, we earn up to 7.25% interest on bank deposits and we pay up to 10% interest on loans.
• In Singapore 100% of eligible population have bank accounts.
• In India post Jan Dhan Yojna scheme, 60% of eligible population have bank accounts.

I understand Singapore is a small city state with population equals to or less than Delhi alone, so comparison might not be justified. My goal here is not to compare and show India in a bad light, but it is more to focus on how moving to “Banked” economy will help the economy. I’m not using word cashless as there will be people who will transact in cash still and cash will stay in the economy, but important to note with demonetisation drive, transactions will move into issuing & collecting bills, receipts that will lead to GST/Income Tax payments and govt. source of revenue will go up.

I’m sure almost all of you are aware and appreciate the great infrastructure in Singapore, that is because everyone pays their tax honestly, which is apparently not the case in India.

India is ranked at number 4 globally in GDP ranking while Singapore is ranked at 15. Considering the size of India in terms of working population and young nation, we should be number 1 if we start paying taxes honestly.

In Singapore, even when we buy grocery item worth SGD1 (INR 50), we get receipt and this is exactly what we need to do in India. As responsible citizens we need to ensure every transaction we do, we take the receipt. This will do two things:

1. We will avoid our white money from turning black.
2. The seller will have record of his/her income and will pay taxes.

I remember when I was living in India, my friend a businessman and I were earning almost same but I ended up paying 40% taxes and he paid tax of Rs.400-500. This was made possible by showing fake expenses and manipulating the system. This theft by numerous such people have caused a dent in the economy and I believe with this move, govt. will be able to bring all these people, businesses into the ambit of tax and increase the scope of their earnings.

Because govt. will be able to earn more, I believe all that money will come back to us in various forms, some of such benefits are:

1. Possible elimination of cash hoarding and shifting towards banking system. Lot of people even without black money hoard cash at home, now all of these are coming into mainstream banking.
2. The banks will be able to lower down the cost of lending and accordingly the cost of deposits. This will translate into lower cost of capital in the economy and will fuel buying.
3. Banks will be able to restructure their NPA’s as NPA categorized borrowers will be able to restructure their cost of financing and will find it easy to pay back. This will result in some recovery for banks.
4. Real estate prices will come down as majority (60%) of black money transactions will go away thus making it easy for people to buy their first home. Lower cost of borrowing will further fuel this growth.
5. With missing black money, India’s demand for Gold will go down and will help the country to curtail it’s current account deficit.
6. Bringing change in the education sector with schools, colleges and institutes not demanding capitation fees and giving admissions on merit. No student who failed in school will be able to become doctor by paying donation.
7. Government will be able to invest more into building infrastructure, reduce subsidies and hopefully be able to reduce income tax rates on salary people.
8. Equitable distribution of nation’s resources based on merit and equal opportunity.

I’m also of the opinion that Demonetisation could have handled better in the sense making sure adequate supply of smaller currency notes be available, no exchange of notes and only deposit with withdrawals from ATM or bank counters (to avoid black money hoarders converting their cash) and giving adequate thought on supporting the farming sector. However, rebooting such a large economy is not an easy thing to do and we must support and congratulate the government in taking a bold step. It is also our duty to educate people who are not privileged to understand the benefits of such a move.

I wouldn’t be surprised if countries like Malaysia, Indonesia, China also follow the same path, taking learnings from India’s experience.

Demonetisation step has brought forward a digitization of financial economy and financial inclusion, which will go a long way in building Nation and is for sure going to put India on a growth path. Government is now required to keep taking innovative steps to not lose out on the momentum demonetisation has created. How about targeting Real Estate & Gold/Silver market next – doing a complete audit of assets people own versus the declared income so far and so is Gold/Silver.

If you have read till here, would you be ok to take the pledge that you will take receipt of all your purchases from here on? Sign the petition here.