Demonetisation and black economy: Rhetoric versus reality
Indira Gandhi declared political emergency to save the politics of domination. Similarly, Narendra Modi declared an unexpected emergency on financial transactions in the country.
According to government sources, it is an attempt to save the economy from black income. The verve in declaring the emergency gives an impression that it is the first time the government is taking action on currency transaction.
It is a fact that the PM has to declare such a decision with utmost care and take people into confidence. So such verve is necessary to a great extent.
Demonetisation gives hope to the people who support it. People have been told this is going to bring them fortune. There is support for this project at the cost of national security. However, fulfilling the expectations of people is going to put the project under chaos.
One is the flow of money to banks and the other is the expected welfare of the huge deposits and reduction in public consumption. How is this going to benefit the common man?
Black money and its politics
The fact of the matter is that no government can unearth the black income in the country. It is expected that black money constitutes more than 20 per cent of India's GDP. In 2013, the volume of black money was estimated as 75 per cent of GDP, however the report was not officially tabled. Some newspapers reported it.
Apart from that, whatever the claims of the government may be, India’s informal sector contributes 93 per cent of the total economy. It includes informal markets and transactions. Such informal and non-banking financial transactions are supporting livelihoods of millions of people. Demonetisation has badly hit these people and their livelihood.
One can also argue that the black economy is an integral part of economic process in the country. Wealth creation and distribution are more active in the black economy, which operates in the informal sector. It tells that a conventional rhetorical action does not save the economy.
In fact, millions of Indians are desperately engaged with black economy for even basic livelihood. India’s mining sector is an example of this. The Justice MB Shah Commission report on illegal mining estimated that illegal mining operations account for Rs 59,000 crore.
No action has been taken on the report. Where is this money going? It is going into the mainstream economy and added to the capital assets of private mining sectors. The poor workers are dependent on these illegal mines for livelihood. They are earning and spending in the local economy. The profit from these illegal mines is added to the profit of big mining companies and hence becomes part of the mainstream economy.
However, poor workers' incomes are now subject to government scrutiny. They have to open bank accounts for future earnings! This is just a glimpse of the Indian black economy operation.
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| Election spending alone proves how black income is connected with Indian politics. (Photo: Reuters) |
Black Money or Black Capital
All previous attempts to unearth black money were never made compulsory. The Congress government introduced the voluntary disclose of income scheme in 1997 and about Rs 33,339 core got declared voluntarily by paying 35 per cent tax. The BJP government did the same in 2016 and collected Rs 65,250 crore by paying 40 per cent tax. However, compared to the economic change and the amount of financial transactions, Rs 65,250 crore is significantly less.
Black money is a byproduct of bureaucratised capitalism, wherein corruption predominantly determines capital transactions. The root cause of holding money in India is the nature of the Indian political economy. Corruption is linked with politics in India, and hence politics is built over corrupt deals.
The public also believes that our politics and bureaucracy are corrupt. So dismantling the corrupt network provides political gain. There were many attempts made in the past as well to incarcerate black income, and as said before, those were half successful.
The Aam Aadmi Party came to power by giving hope to the people that it would take action against corruption. Modi offered to bring all black income located abroad. And it has been proved that it is beyond the reach of the government and now the ruling party wants to avoid any reference to this.
The fact is that Indian political parties desperately wanted to avoid serious public debate on corruption and politics. Election spending alone proves how black income is connected with Indian politics. Indian capitalism does not prefer to have a transparent system, and hence corruption is an integral part of the everyday state.
So the honesty of bursting the root of black income is dependent on disowning the influence of private capital on politics. The honesty of the BJP government to save the economy needs to be looked at in this perspective as well.
Banning currency notes
Banning currency notes also means restricting the spending of unaccounted money. It is not necessarily fake currency. The Indian corporate sector has the mechanism to keep unaccounted money in subsidiary companies. Apart from that, many support systems extend to private corporate sectors to dodge tax pay.
So the proposed currency ban is going to affect those who do not practice banking or hold unaccounted income. The last one week's results proved that the common man’s unbanked income is coming to government notification and not much heavy cash declarations. It also proved how ineffective the banking infrastructure is in the country. Public sector banking system proves its success and institutional failure as well. Success is its capacity to meet such an emergency and the failure is the lack of preparation to anticipate the circulating money.
The poor mass of the country does not have unaccounted money; however, it does not mean that their wage earnings are safe. Their earned savings need to be ratified. Informal moneylending and cooperatives have to stop the operation or link their operation through the banking system.
It would be huge support for the Jan Dhan Yojana banking system. The operating bank account becomes a necessity for the poor and success depends on the operation of the public sector banking system. The positive impact of the present declaration is flow of money to the banking system. Theoretically, it leads to accumulation of money in public sources and it should lead to capital formation in the economy. It could be private or public sector capital formation. The coming days will prove this.
It also helps to see how much volume of black income exists in the country. However, this alone does not resolve the issue of black income. The concern is black economy. The black economy is well connected with mainstream economic operations as well.
Land is the most attractive sector, which connects black with white economy. It is the most manipulated sectors. If the government is committed to snooping into the network, it has to take a list of big land-holdings in the country. It is evident from the huge arable land ownerships of private corporate and individuals.
Indian capitalism is moving towards an oligopoly model which poses a threat to any attempt to unveil the black economy. Big capital is getting all forms of support to expand it. Indian politics is largely controlled by this oligopoly capitalist. As long as this prevails, every attempt to save the economy would be futile. It can create political mileage for the ruling government; however, success depends on its economic policies towards capital.