by James Corbett, The International Forecaster:
Well, that didn’t take long. In the wake of India’s demonetization of the 500 and 1,000 rupee notes last November, I wrote an editorial (“Crisitunity in India’s Cash Crunch“) where I noted that one significant reason for the drastic move was the chance to rein in India’s sizable informal economy:
“In India, they call cash gleaned from counter-economic activities ‘black money.’ It’s not known to the government, it’s not stored in the banks, and it’s not taxed. In other words, it’s the would-be technocratic overlords’ worst nightmare. It’s impossible to know the size of this ‘black money’ pool (can we call it something cooler, like ‘freedom funds’ or something?) but it has been estimated to be as much as 20% the size of the total Indian economy. Now with the vast bulk of those freely-gotten gains being brought back into the banking system (or exchanged with a valid form of government identification), it will come back under the purview of Big Brother and his friend, Uncle Taxman.
As if on cue, earlier this month the Indian income tax department began asking banks for data on their customers’ bank deposits between April and November of last year so they could better analyze the cash that was being turned in for signs of “suspicious” activity. And now, the latest from the Hindustan Times:
“People who deposited huge amounts of cash in their bank accounts after the Centre’s demonetisation exercise may get multiple notices from the Income Tax department through the rest of the year.
“The department – which has started sending notices to those who deposited currency over Rs 2 lakh [200,000 rupees, or about US$3000] after November 9 – directed its officials to ensure that “genuine” cases are dissolved at the earliest. Probes would then be undertaken against those found to have “fuzzy” sources of income. The mammoth exercise could go on till the next financial year, sources said.”
The article goes on to note that “using risk-based data analytics of cash deposits in bank accounts to distinguish between genuine and not genuine cases, the tax department has become capable of targeting even entry-level operators.” Not only that, but we now learn that “the government has begun analysing deposits in new accounts and loan repayments as well as transfers to e-wallets and advance remittance for imports during the last 10 days of deadline to turn in junked notes.”
In other words, the poorest of the poor and the previously unbanked have now been duly identified and branded as tax cattle, ripe for the fleecing (to mix a metaphor). No surprise there.
Indeed, as Satya Sagar points out in our recent conversation on the demonetization scheme, if this scheme were really about cracking down on so-called “black money,” it’s a colossal misstep. Only 6% of the so-called “black money” is actually held in cash, as those looking to evade the taxman invest it in real estate, gold, or foreign bank accounts, and much of the “illicit” cash that is flowing around the system is used as slush funds, bribes and kickbacks to corrupt politicians.
Instead, this campaign can be seen as an attempt to accomplish, among other things, the identification and registration of the previously unbanked and untaxed masses, and the kick-starting of India’s nascent cashless-payment economy.
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