Book Review: Heads You Win

The War on Black Money

8th November 2016 will be known not only as the Day, US elected Donald Trump as their President, but also as the day, Indian Government took a decisive step towards the fight against black money.

In retrospect, the many steps taken by Government in the last two years were clear indication of things to come.  

Pradhan Mantri Jan-Dhan Yojana was the ambitious scheme to get every Indian to own a Bank account.  Every Indian was allowed to have a Bank account with zero balanace and a debit card with which he could make electronic transactions. He would also have access to Internet/Mobile banking as he desired.

To further incentivise those did not open such an account, Pradhan Mantri Suraksha Bima Yojana & Jeevn Jyoti Bima Yojana were introduced.  While the former provided a Rupee two lakh accidental insurance coverage against an annual premium of Rs.12/- per annum, the latter provided a term insurance coverage of the same amount, against a premium of Rs.330/- per annum.  In both cases, the premium would be auto-debited from the person's Bank account.

There was enough incentive for each Indian to have a Bank account.  

Recently, Unified Payments Interface was introduced that provided immediate money transfer through mobile devices round the clock.

New Rs.2000/- note
New Rs.2000/- note

While doing this, the Government has provided a facility for people to exchange their existing notes for the newer notes or notes of other denominations, or deposit the same in their Bank accounts.  

Considering the population of the country, the Banks are witnessing huge rush as people are exchanging their existing currency or depositing the same.  

If we pause and examine typically how much cash would a person need to hold in person, interesting things emerge. 

Speaking for myself, I see my cash transactions having drastically reduced over the last several years down to almost single digit per month.  My current recurring monthly transactions are for the following:
a) person who cleans our home
b) person who clean our car
c) person who brings flower
d) person who brings newspaper
e) person who brings milk
f) weekly petrol for my scooter (only because additional transaction fee is levied by my card for transcations less than Rs.400/-)
g) fees for some classes that my family members go

Of these, I could arguably have all these done electronically (Bank transfer or PayTM or equivalent) if I convinced the other party.  If any of them do not have a Bank account, I would say, it is my duty to set them up with one.

All the rest of my expenses are done electronically - bill payments, grocery and vegetable purchases and so on.

I don't see how most of the other salaried people are different from me. Given this, it is difficult to understand why would people need to stock cash at home.  Medical emergency?  Most hospitals and medical shops accept electronic payments.  Small clinics, doctors and shops?  If they are small, I expect they would charge small amount as well. 

Given this, I am not convinced why Government has introduced Rs.2000/- notes or want to bring back Rs.500/- and/or Rs.1000/-.  Why cannot Rs.100/- be the maximum denomination of cash?  Why cannot it be mandated that any high value transaction have to be only done electronically?  Since it is difficult to enforce it, why don't the Government just stifle or stop the cash - then you have no choice!

Changing the currency does not change or stop the daily creation of black money.  Bribes will still be taken - in newer currencies.  Transactions without receipt will continue to happen - in newer currencies.  Jewellery and real estate transactions will continue to happen.  Yes, the Government could demonetize the currencies every five or ten years, making existing stock of currencies invalid. But instead, what if you just reduced the amount of cash in circulation, especially high-value one?  What if it is just impossible to get Rs.1 lakh in cash?  What if no Bank gives more than Rs.10,000/- in cash (similar to what they are doing the last three-four days)?  

Each time I read in the newspaper about people being robbed of Rs.2 lakhs or Rs.5 lakhs and so on, the first thing I wonder is, why are people carrying so much cash?   It is clear that people receiving such high-value cash do so, only because they do not want it to be accounted. Else, how inconvenient isn't it - to manage so much cash? 

I tend to wonder seeing the queues in the Banks if all the people are there for legitimate reasons or are exchanging money as proxy for others (for payment of commission).   This is a good business today - Rs.100/- commission for exchanging Rs.2000/-  A person having Rs.2 lakh black money shouldn't mind a 5% commission to convert it to newer notes.  I believe Banks have some verification in place (against identity proofs submitted), but given that we are the champions when it comes to black money, why would we not have smart people exploiting any possible loopholes?

Anyway, all I can say is,

Let us use this opportunity to reduce our cash expenses to the barest minimum.  
Let us encourage our service providers to accept electronic payment. 

That will be the true success in the fight against black money.