The demonetisation drive is only a beginning and not an end against the war on ill-gotten money. With more to come, the country prepares itself for a new model of economic governance and trajectory. Here’s looking at the way forward.

Ever since Prime Minister Narendra Modi dropped a bombshell on November 8 by announcing the government’s decision to scrap the high value currency notes, a lot of national energy has been spent either in debating the merits or demerits of it all in queues before the banks and ATMs. To be fair to him, Modi did say in his televised speech and thereafter that there would be some disruptions and inconveniences for the initial few days. Later, he sought 50 days for his battle against corruption and black money to yield tangible results which in the long run should make life much easier for the honest tax payers.

If we cut through the jargons, demonetisation of notes is among the principal tools, though blunt, before the government to build a system where each penny of the $2 trillion Indian economy is counted, accounted for – some taxed and some untaxed. The fact that a blunt tool such as demonetisation (there cannot be more inappropriate term than ‘surgical strike’ for this) was used, in a way, reflects the inability of the present system to live with the unaccounted and black money and co-opt with it without treating it as a taboo. The way things are now unfolding, it would not be so any more.

But the way things have unfolded after Rs 500 and Rs 1000 notes were junked from the midnight of November 8, 2016, it appears the disruptions to the trade, industry and honest individuals turned out to be much more than anticipated. Since the ownership of this gigantic task which is also being seen as a big political gambit lies with the Prime Minister who says it is only a beginning and not an end against his war against ill-gotten money, the country better prepares itself for a new model of economic governance and trajectory.

The political stakes are really high; it is an irreversible battle that the Prime Minister has embarked himself on. The Opposition parties would oppose the move as long as people feel the pinch of it; so the challenge for the government is to put all its energies and minimize the disruption though it says that the people are prepared for this pain.

So, what does it mean for the people of India? Will life change suddenly after the December 30, 2016 deadline for surrendering of the old notes, by which time, the government and the banking system would hope for re-monetising or simply infuse back bulk of the Rs 14 lakh crore of the currency withdrawn? Well, the life of an average Indian has already changed; though it is for initial pain with a promise that it is worth it for a secure future.

As the political battle plays out on demonetisation, the citizens gears up to get savvy for a new less-cash economy. We do a scan of what the secure future that is being promised should look, of course in the long run, a few years down the line.

FOR THE COMMON MAN

Citizens would have to live on money that is earned but spent mostly via a banking route. Cash will remain the king, but this kingdom would rule through electronic mode, which will be or is already being branded as mobile wallets, credit or debit cards with several private and public sector players acting as intermediaries.

The mobile wallet player Paytm would have emerged as the largest advertising spender in the last few weeks since November 8 on promoting its payment application. Of course, it took the lead and has built itself into a mighty financial services brand with a recall value that could even take the largest public sector bank head on. But, as per the RBI data, over 45 players have started offering the Pre-paid Payment Instruments (PPI), popularly known as M-wallets.

With the back-end infrastructure ready, more and more of such e-money would be available through passwords and coding. “Till recently, the mobile banking applications were largely operating in silos, particularly for merchant payments and generally not interoperable across merchants and customers of different banks. With the introduction of Unified Payments Interface (UPI), twin benefits have come into place for mobile banking – convenience of operations for customers (can provide just a registered virtual address instead of details of bank accounts etc. for making or receiving payments) and merchant ‘pull’ payments. The UPI, which is application-based and usable on smartphones with Internet access, when fully operational across banks, has the potential to revolutionalise the mobile payments arena,” says RBI Deputy Governor, R Gandhi, in a research paper titled ‘Evolution of Payment Systems in India: Or is it a Revolution?’

FOR RETAILERS, KIRANA OUTLETS

The Goods and Services Tax (GST) would be a reality in the next financial year and the entire trading chain would be inter-linked with a common national network, necessitating that sooner the business of ‘Kacha Bill, Pucca Bill’ (KBPB) is discarded, better for the trade and ultimately the consumers. Under the GST-driven system even the cash transactions would be captured, leaving much less scope for evasion of tax. Since the KBPB would not help, there would not be much discretionary powers before the retailer to jointly pocket the tax evasion along with the customer. Both will have to live life afresh but on a thin traders’ margins which could only be improved by modern techniques and improved efficiency like better inventory and cash management. After the expected initial hiccups, the GST Tax Network should also help the trade in better and hassle-free compliance. In fact, that should be among the top priorities for the government – both at the Centre and the states.

Same holds for other service-providers like caterers and tent-wallahs who openly tell you how to do 50:50 KBPB. Even if tax evasion takes place, holding cash at home or elsewhere would be a big headache as you would never know when the government brings about stringent laws and rules on gold limits for individuals and properties which could have been bought with hard cash, to a large extent in the past. No wonder, the real estate sector is suffering maximum of pain and one can only hope that the middle-class households stuck in incomplete projects are not put to further sufferings.

FOR FARMERS, RURAL LABOURERS

This segment of people remains a big challenge; but the way the farmers and the entire rural landscape were not spared from the currency shock , shows they too will have to be part of the Aadhaar, if not PAN network. (Farm income is exempted from Income Tax). But the problem lies in reaching out to them even though the government has started several initiatives like electronic mandis, etc. According to Agriculture Minister, Radha Mohan, as many as 5.5 lakh farmers have taken to e-Mandis with active involvement of 54,000 traders and 28,000 commission agents on this electronic platform.

Still, it is going to be a long haul before the financial inclusion for the small and marginal farmers and the entire rural work force can be achieved. Having opened accounts in the banks under the Prime Minister Jan Dhan Yojana, in itself, would not be enough, because the banks where these accounts have been opened are several kilometers away from the villages. To visit a bank in the nearby town or city, a farmer has to spend his full day, commuting and spending some precious money on transport. The best answer for the farmers would be to modernise the post offices and achieve commonality of purpose between the banks, the proposed India Post Bank and the commercial banks. One of the problems coming in the way of reaching the farmers, during the demonetisation drive, has been the reluctance on the part of the government and the Reserve Bank of India to task the cooperative banks to participate in the exercise. It’s an open secret that most of these cooperative banks are controlled by some weighty politicians and there is fear that they may use this gateway for converting their black money into white.

PAN, AADHAAR TO BE YOUR SHADOW

You may afford to forget your surname, but life would be difficult without PAN (Permanent Account Number) and Aadhaar, even for your domestic help, leave alone the affluent class. With inflation, the value of Rs 50,000 which is the threshold for mandatory PAN, would get reduced with the result that your common needs like payments of school fees, hospital charges would require these numbers every other day. Also with the growing number of close circuit television (CCTVs) at private and public establishments, an average citizen is captured on camera, off camera, into a digital database which can be used against you if there is any laxity in your income tax returns or casual approach in treating your banking, non-banking transactions.

The annual Income Tax Returns would become more elaborate in terms of your assets declarations – gold, fixed deposits, mutual funds and property investments. Some of these may not be necessary in the returns now, but you never know, what could be asked when; so better keep your slate clean.

TAX EVADER TO AVOIDER

One of the main reasons for tax evasion in India is an overwhelming size of the unorganised and informal economy which has rewarded its constituents but thrown new issues. Many of the shopkeepers even in the upmarkets would resort to tax evasion as it suits both the buyers and sellers; it would be unfair to say that the entire gains were pocketed by the businessmen in the informal sectors – be it a shop-keeper, tent-wallahs, banquet owners or the property dealers. The buyers or the clients were complicit in the deals while the damage is now sought to be borne by the business entities. The entire KBPB business would now give way to proper tax planning and there would be more legitimate ways of “avoiding” of tax rather than “evasion”. For instance, some expenses will be shown as deductions from the income, while other tax saving instruments will be handled the same way. It would not be only salary earning people who would do tax planning but the traditional small-sized businessmen too would fall in line.

POLITICAL DONATIONS UNDER SCANNER

Without getting into the debate about whether they are clean or not, it cannot be denied that most parties sit on large piles of unaccounted money sourced from unknown people as the law requires identification of the donors for amount only above Rs 20,000. This law has been circumvented by splitting the unaccounted receivables into under Rs 20,000 buckets. While there is a panic over the funds parked in gunny bags ahead of assembly elections in five states, including Uttar Pradesh and Punjab, these parties too would become savvy, if not compliant, in their money matters. New ingenious ways would surely be found to bypass the laws and there lies the challenge for the PM’s drive against corruption. If he, indeed, wants public support for the onerous task, he must think ahead of the political parties, including his own, and checkmate them. That would bring a lot of credibility to his drive. In fact, massive electoral reforms, reducing the use of money and muscle power, should be the part and parcel of the nation’s fight against corruption and black money.

TACKLING COUNTERFEIT

Surely, they would have received setbacks from the demonetisation by way of squeezing of funds, but it would be naïve to under-estimate them. We already have reports of new notes of Rs 2,000 found on the bodies of some slain terrorists in Jammu and Kashmir. This is one area where a constant vigil would be required with the help of technology which should be upgraded even though the government does not have enough scope at this stage, given the pressure to print new notes and replenish the currency withdrawn from the economy.

Even the US is struggling against the counterfeit currency funneled through Peru and Mexico. The Washington Post quoted the US Secret Service describing this counterfeit currency, “Peruvian note”, as the “finest fake money on the planet”.

Besides, the Hawala operators are technology smart, as was made evident from the recent unearthing of debit card frauds in the banks where security was compromised, making it easier for the miscreants to steal e-cash of unsuspecting customers. Of course, funding terror operations through counterfeit currency by Pakistan has remained a daunting challenge for the Indian authorities, but it would be reasonable to assume that those guys could be able to ‘remonetise’ their operations fast enough. Lowering of guards after demonetisation is certainly not the way forward.