Why Manmohan Singh was right on demonetization

Former Prime Minister, Finance Minister and RBI Governor Manmohan Singh spoke out strongly against demonetization in the Rajya Sabha on November 24, characterising it as an organised loot and legalised plunder of the common people.  The sharp use of adjectives to describe his position stood out as uncharacteristic of his usually mild mannered approach.  More surprisingly, there was a lack of a substantial rebuttal from the government or the ruling party with the exception of questioning what right did the man who preside over the scams of UPA have to talk about loot and plunder.  Nobody questioned why such words were used in the first place.

In light of a seemingly innocuous clarification given by Revenue Secretary Hasmukh Adhia in a press conference on Dec 16, though, the description assumes significance. Adhia clarified that under the Income Tax Act, 1961, deposits made by political parties are exempt as long as their donations are properly accounted for.  When this led to an outcry by the media and the public at large, Finance Minister Arun Jaitley stepped in to put on his best appearance of indignation and ‘clarify’ that the government was taking a tough stand against political parties as well (while only reiterating the law as it stands).

Let us then examine the law and how it works in practice because there is a huge gulf between theory and practice:

  1. Political parties are of course allowed to accept donations.
  2. Donations in cash are allowed.  No amount is specified for the same except that all donations (cash or bank) above Rs.20000, name and address of the donor is to be provided to the EC.
  3. The problem is, it is ridiculously easy to make multiple donations of below 20000 each and not have to report them at all and thus escape tax.
  4. Tax, how?  Well, a person holding black money in (old) 500 and 1000 rupee notes (which have ceased to be legal tender) can simply make a donation to a political party in multiple installments, each below 20000 to escape being taxed on the black money.
  5. But wait, hasn’t the FM said that it is illegal for a party to accept donations in old notes post demonetization?  Right, but you can always backdate the receipt (if any)!  Has been done by lesser mortals than politicians so why wouldn’t a political party be able to get away with it?
  6. Is there a law that says that all receipts must be issued by an automated computerised system that does not allow manually editing the date?  Afraid not!
  7. If this was so, why did the government still go through with demonetization?

Now we are talking!  You see, it stretches credibility to say that the government did not consider such a massive loophole in the chain while rolling out demonetization (with its attendant costs). I mean, if they are really so incompetent, they need to tender their resignations forthwith and publicly own responsibility for such a Himalayan blunder.

But what if they knew?  Once you open your mind to such a possibility, you get a different view.  Remember the tall promise made by the govt to eliminate black money? Something considered impossible by conventional wisdom.  Well, the govt has done exactly that and how!  They have afforded to all black  money operators an opportunity to convert all black money held in cash to white with no questions asked.  The price for that, of course, is ‘donating’ the money to political parties.  But that is perhaps a small price to pay for those who would be overcome by gratitude to the govt for their benevolence.

While the Indian tax administration has hitherto been spectacularly unsuccessful in recovering their rightful claims of tax from black money operators, they have at least had a claim to the same by law.  Black money operators needed to exercise due care whenever they needed to convert black money to white to avoid getting caught.  Not anymore.  Here at last is a one time window to whitewash your sins with not a finger being waved at you.  In 67 years nobody has thought of such a beautiful scheme.  No need to disclose income either, just donate.  Ah, if you won’t donate, that’s too bad.  After all, with several state elections lined up, political parties could do with the extra cash which, and this is the best part, will be totally legal.

Perhaps I am too cynical.  Perhaps I have got it wrong.  Perhaps a man as learned as Manmohan Singh got it wrong too.  But in that case, it is up to the government to offer some substantial rebuttal instead of unleashing trolls who label people as cangi or whatever bullshit to obfuscate the issue. There has thus far been a paucity of clarity from the government, all excused of course under the garb of confidentiality.  But in this instance, the nation really does need to know how exactly does government plan to bring colluding politicians and businesses to book?  That is, if the horse hasn’t already bolted and there’s a good chance that it has.

In the grand tradition of conservative/ Tory parties, the BJP too has arranged for a brutal redistribution of wealth from the poor to the rich.  Only, they have succeeded, thus far, in convincing the people that they are in fact playing Robinhood and doing the exact opposite.  Their UK and US counterparts must be watching their genius with astonishment and not a little envy.

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