The RBI statistics on the return of demonetised notes have sparked off a debate across the political spectrum. The Opposition which has been critical of the Modi government’s note ban drive, has yet again come out and lambasted the Centre, calling demonetisation a flop show.
Former finance minister P Chidambaram today disapproved Centre’s claim that demonetisation has been a successful effort. He called the note ban move a total failure. The former union minister also said that cashless economy was not the original objective of note ban.
When asked if he was being excessive with his criticism of demonetisation, Chidambaram said that his view was based on facts. Here is the full interview of Chidambaram, hosted by Rajdeep Sardesai.
FULL TRANSCRIPT
Rajdeep Sardesai: The RBI report and numbers on demonetisation have predictably sparked off a political furore. The Opposition is saying that it’s evidence that demonetisation has been a flop. No one has spoken more caustically and severely than former finance minister P Chidambaram. Your tweets in particular suggest that demonetisation is an unmitigated disaster. Are you being a little excessive in your criticism simply because you belong to the Opposition?
P Chidambaram: Firstly, I want you to take back the word caustic. I am matter of fact. The matter of fact conclusion is against the three objectives set by the government in its letter to the RBI and the prime minister’s address to the nation. Demonetisation is an abject failure.
Q: You say don’t use the word caustic, but how am I to interpret tweets that you put out.
99% notes legally exchanged! Was demonetisation a scheme designed to convert black money into white?
– P. Chidambaram (@PChidambaram_IN) August 30, 2017
RBI ‘gained’ Rs 16000 crore, but ‘lost’ Rs 21000 crore in printing new notes! The economists deserve Nobel Prize.
– P. Chidambaram (@PChidambaram_IN) August 30, 2017
A: They are matter of fact statements. Every word of that is correct.
Q: Trenchant criticism?
A: You can call it trenchant.
Q: But are you being excessive? Because the government claims that the glass is more than half full. 
Arun Jaitley says this is a major step towards the formalisation of the economy, and don’t look at it in terms of confiscation of money.
A: But that is the objective they set for themselves. One of the three objectives. And then the attorney general told the Supreme Court of India that the government expects Rs 4-5 lakh crore.. or Rs 3-4 lakh crore, it doesn’t matter, a very large proportion will not come back to the Reserve Bank and the government expects dividend from that. He said it.
Q: Rajiv Kumar, the soon to be vice-chairperson of Niti Aayog, said – don’t look at the flow of black money, but look at the stock. Government has attacked the swamp of black money that has come into the system. Kumar said, Unlike Mr Chidambaram who seems to suggest black has become white, black has become grey, and the tax and enforcement directorate now can target this swamp and stock of black money.
A: I don’t want to comment on someone who has assumed office just now. Three days after he assumed office, the government disowned Niti Aayog’s report. The aim of the government was to attack the stock of black money. In fact, we said demonetisation will not attack the flow, or the generation of new black money. It will only attack the stock of Rs 3-4 lakh crore which should not have come back to the system. Now it means that anybody who hoarded black money has found a way to convert it, which is why I ask the question: This seems to be designed to help people or enable them to convert black money to white.
Q: The government says now they are equipped to actually know which of those accounts with illegal money has been brought into the system and thereby they can penalise and expose those individuals.
A: Let’s ask that question and get an answer. The government claims that about Rs 16,000 crore or so of black money or undisclosed money has been detected, and they have actually seized about Rs 1,000 crore of cash. Now, go back to the previous years of income tax records, the I-T department has claimed that x thousand crores of undisclosed income has been detected, and in various searches and seizures, we seized got Rs 500-1000 crore, it’s about the same range. Nothing new. The fact remains that it is not the final word. There’s a process of appeals after that. It’s only when the final adjudication takes place that you’ll know that how much of this confiscated is tax and black money. I don’t think one can come to any conclusions based on claims made of tax seizures, because I have seen this over 10 years. Every year the income tax department makes similar claims.
Q: So you don’t accept the government’s argument that account holders can now be tracked. More than 3 lakh crore account holders are now under scrutiny?
A:They’ve always been under scrutiny. For example, when I introduced the cash transaction tax. It was intended to track people who were depositing or withdrawing cash. We found a large number of people and proceeded against them. When we introduced the suspected transactions reporting, we tracked a large number of people. There are various ways to track people. I don’t think you can claim that demonetisation was a way to track people.
Q: The government will claim, even though it may be very small fraction, among those objectives – counterfeit notes – .00008 percent. At least an effort has been made in that direction?
A: But that was identified by NIA in collaboration with a think tank in Kolkata, that the total counterfeit currency was Rs 400 crore. Countries deal with counterfeit currency by redesigning their notes every two or three years, introducing new security features, and announcing that currency notes printed prior to a date will not be legal tender. This has been done in the past and that’s the way it should have been done again. Demonetisation is not the way to detect counterfeit currency notes. Besides, we have Rs 2,000 currency notes counterfeited now. What is your answer to that?
Q: You are also a former home minister. The government also claims that this was also a drive to cut terror funding. They claim Naxalite incidences are down, and terror funding actually in some form been strangulated by the decision of demonetisation.
A: Let’s take terrorist incidences. I have some figures, may be dated. In Kashmir, where terrorism and terror financing is high. The casualties in 2017 is higher than 2016 – in terms of incidence, security forces killed and civilians killed. So assuming that terrorism in Kashmir is financed by black or unaccounted money or counterfeit money, there’s no evidence that in Kashmir these objectives has been achieved.
Q: Naxalite incidents?
A: Naxalite incidents were coming down after 2009. Just plot it on a graph. I have done it. It is a secular decline. That decline is continuing because the government is following a policy followed by the previous government. I don’t grudge them, I compliment them. But don’t link it to demonetisation.
Q: The other objective the government claims are cashless economy, digitisation of economy has gathered pace, 20 percent increase in digital transactions?
A: That was not the original objective of demonetisation.
Q: Are you accusing the government of changing the goalpost?
A: That apart. Look at the facts. In November 2016, non-cash or electronic payments were Rs 94 lakh crore. In May 2017, six months after demonetisation, it had come back to Rs 94,21,000 crore. There’s no evidence that there is sharp rise in non-cash transactions. Cash still seems to be the main mode of transaction in this country. I am not saying that some sections of the people, you and me, may have been nudged into digital transactions. That is good. In fact, I support digitisation of transactions. But to say that demonetisation is the way to push people into digitisation, you made sure that millions of people stood in a queue, in rain and sun. 104 people died. Several small and medium enterprises were wiped out. 15 lakh jobs were wiped out. Economy slipped down from 7-8 percent to 6-7 percent. And you say that digitisation is the answer to all these woes?
Q: Yet, in almost every election since November of 2016, the BJP has been triumphant. So in political terms, despite the social, economic and human cost, people seem to be validating demonetisation?
A: Let’s answer that question. How easily the media is conned. Five elections took place on the same date (in March). In UP, the BJP scored a resounding victory. So your conclusion is that the people have voted for demonetisation. But on the same day, the people of Punjab voted resoundingly against the BJP. So what will you conclude in Punjab? In Goa and Manipur, BJP was pushed to second place. So will you conclude that demonetisation got half a vote. I think these are facile conclusions. No state election takes place on one issue. I don’t think you can decide the merit and demerit of demonetisation, except in economic terms.
Q: But the contrarian view is that the UPA or the Congress party did very little to tackle the swamp or stock of black money. Here comes the NDA with the promise to target black money, tries to do something about it, and instead of at least giving the government some marks for the courage, here’s the Opposition simply saying please restore the status quo and allow the black money flow through the economy.
A: We didn’t say that. Wrong again. Income tax department is still there. The gentleman who was the director is now the chief vigilance commissioner. Please ask the government to publish figures from say 1999 – the Vajpayee years, through the 
Manmohan Singh years – year-wise figures so on. Number of income tax searches and seizures, amount of undisclosed income detected, number of adjudications or prosecutions started, and amount of tax actually levied. You’ll find that year after year, the same trend has continued.
Q: You agree that the quantum of black money was high and the high value transactions…
A: What does demonetisation answer? The VDIS (Voluntary Disclosure of Income Scheme) were an answer. Through VDIS, we brought to surface nearly Rs 33,000 crore of undisclosed income. People were obliged to file income tax returns. We collected Rs 10,000 crore tax. Mind you, this was 1997. If you look at it current rupee terms, it is over a lakh of crores.
Q: If you were the finance minister, you would have preferred a VDIS part 2, a sequel, rather than a dramatic move like demonetisation, which has according to the government spread fear in the minds of black money hoarders today?
A: I am not saying that. I didn’t say the VDIS can be repeated every year. It can be done once in 25 or 30 years. The answer is not demonetisation.
Q: What is the answer?
A: Please understand, India’s economic and tax structure is peculiar. In India, we have legitimate non-taxable income in the hands of over half the population – farmers, religious institutions, religious trusts, charities, people living in northeastern states and tribals. It sits alongside legitimate taxable income. As long as you have this two-structure economy, flow of money from one to another takes place constantly. A Rs 2,000 note will change hands 20 times in a day, depending on whose hands the money is, it will be either white or black. Answer is therefore to incentivise people to pay tax by having lower tax rates, which I did in 1997. They have stood the test for 20 years. Lower tax rates, more friendly tax administration, which encourages people to file and pay taxes. And, various other tools for detecting transactions – the cash transaction tax, the suspicious transaction reporting, third party reporting were tools. So you have to sit down and think of other tools. Answer is not demonetisation.
Q: The government is also saying now that the tax base has widened, and this is also a consequence of demonetisation?
A: You guys don’t want to ask questions. Either you are too scared to ask the government questions. Ask this question. The tax base has increased year after year in the last 15 years. Yes, there is a spurt in the tax base this year. But the average taxable income reported in those returns is Rs 2.7 lakh, which is barely above the threshold of taxation. Therefore, the income tax that will be collected will be so little. Ask the government to disclose how many of those who have filed returns, filed no tax liability returns.
Q: The government is also claiming that the critical areas that demonetisation has tackled include real estate and yesterday the finance minister said that the next target is political funding.
A: Oh please. Let him do it. No difficulty. The biggest beneficiary of political funding in the last three years of Rs 707 crore is the BJP. Nothing wrong in him targeting political funding.
There are sectors in the economy which are prone to generate black money. You know those sectors. Construction, large parts of the film industry, capitation fees extracted by education institutions, petty corruption at every level of administration – panchayat, municipality, revenue administration – and political funding. Rallies are held. Are you suggesting that every rupee spent on rally was paid for by check. RK Nagar byelection – the EC counter-mandated the ground, and this was after demonetisation, that black money was distributed. Income tax department had seized a sheet of paper which showed how much money was given to which minister for how many booths. Are you saying that was white money? So the answer is how do you dis-incentivise those sectors from generating black money.
Q: The government claims that the Congress did nothing too and it is the current government which is now waging a moral crusade.
A: I don’t agree that we did nothing. Mr Vajpayee was there for six years. Mr Morarji Desai for a year and a half. They did nothing? These statements have any value?
Q: Given your trenchant criticism, the RBI governor, or the chief economic adviser to the government, someone must be held accountable for what went wrong in your view?
A: I don’t think the chief economic adviser advised or supported demonetisation when it was announced. The RBI governor acted hastily on a letter received on November 7, and recommended it on November 8. I believe he should not have done that. I think he has learnt his lessons.
Q: Manmohan Singh went on to call it organised loot and plunder.
A: He called it monumental mismanagement. Which is right. It is justified. If everybody who had a hoard of black money, as it seems has converted his black money into white, that is in sense a plunder of the economy.
Q: Government says they have moved on from demonetisation to remonetisation.
A: Because they had no choice. Because of the complete chaos across the country and collapse of the economy to remonetisation with Rs 2000 note.
These are the things the PM and the finance minister can do now. The highest denomination of currency in this country should be Rs 500. In the US, it is a 100 dollar bill. Gradual withdrawal of the Rs 2000 note. There are well-known rules for this. If I were doing demonetisation, I would have prepared by printing a huge amount of Rs 200 notes before I demonetised the 500 and 1000. 200 and 500 is where it should have stopped. That would push people to do only do small transactions in cash and large transactions in digital mode.
Article source: http://www.news18.com/news/india/bofors-pay-off-case-supreme-court-likely-to-hear-plea-today-1506309.html
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