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The Sixth Index

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Heard so much since last 30 days about demonetization. Right from the emotional videos to the acerbic interviews, from the blatant speeches to the new economic revelations. Unfortunately, the situation is such that everybody stands in polar positions. As the typical extremely judgemental Indians, as we are, either the people have lauded or they have criticized but not many seem to have a clearer rational view on what lies ahead.
Well, to shed some light on the facts; let’s understand a few pointers.
The size of India’s economy or the GDP is close to 2.2 trillion dollars or 150 lakh crore rupees. The parallel economy that is the black money economy is almost 20-30% of the country’s GDP (as per a report by Ambit Capital research). In fact, as per Ambit, the cost of black economy has recently gone very high & thus the black economy has shrunk from the levels of once 50-70% in 2014 (a report in The Hindu available at http://www.thehindu.com/news/national/black-economy-now-amounts-to-75-of-gdp/article6278286.ece ) to the current levels of 20-30%. So we can safely assume that the black economy is close to 30 lakh crore rupees. The cash component comprises of almost 6-10% of the black economy. There is no certain figure about that but there are various studies which would give the similar estimate. Hence it is safe to assume that the cash component in the black money is close to 2-3 lakh crore.
As of 31st march, 2016, the total value of issued bills (currency notes) is 14.5 lakh crore. Out of this 14.5 lakh crore, 2.5 lakh crore is the black money which in the ideal scenario should not come back into the system and should rather extinguish for good. As a matter of fact, the govt of India expected almost 3 lakh crore of the currency to not to be deposited back in the banks, which would be a cent percent success for the GoI. Till now, as per RBI on 7th Dec, 2016, almost 11.5 lakh crore has already been deposited into the banks. So, we can safely assume that almost all the white money has come back to the system and now any further inflow would be through the money laundering practices. So, here is one pointer for us to wait and watch. I call this as the index of “Black money hunt”.
Second, we go to the fake currency notes. As per some estimates, the fake currency carried the value of almost 400 crores. This issue definitely sets fixed till the highly uncreative nexus of fake currency comes out with a creative solution. This is the index to watch “Fake Currency”
Third, we go on to the index of India’s GDP. The slow-down is imminent. The various reports predict the slow down anywhere between 0.5% – 2%. So, we as the country are set to lose anywhere between 0.75 lakh crore to 3 lakh crore in the current financial year.
Fourth index is the cost of this entire exercise which stands close to 1000/- per person. So another 1.25 lakh crore is burning.
After having a strong peep into the above four parameters, I tend to believe that the entire exercise stands at almost a no-gain, no-loss point. Then, the fifth index appears. One thing I have always believed in is, “what can be seen, can be measured. And what can be measured, can be controlled”. The entire exercise has suddenly opened the gates towards a digital economy. I, per se, don’t believe that the typical Indian mind set is as yet ready to embrace the digitization of their money but having said that, my belief does not give me ample reason for why it must not be tried. I have also seen the people from my village in Haryana, chatting comfortably on whatsapp & updating their status on Facebook. I believe that if they want, they can get acquainted to visualize the money as a number on their phone screen, quite easily. Yes, for that we also need a very strong security system & an extremely responsive support system to handle those possible millions of queries. As more and more people become a part of the digital economy, they also naturally come under the taxation system. The growth of country depends on how much it can spend to make the life of its people easier. And no prize for guessing that the money too comes from the people itself. The fifth index which I call as the “Tax Blanket” is a very important parameter to gauge the success or failure of the whole exercise. As per early estimates, if the percentage of income tax payers increases from a meagre 2% (yes, only 2% of 1.3 billion Indians) to 4%, the income tax collection will increase to almost 6 lakh crores. That is a hopping jump of 3 lakh crore from the current year’s budgeted target of 3.2 lakh crore. Add to that the possible increase in the collection of service tax as India embraces GST, the total target collection of taxes for the budget year 2016-17 could go upto 14 lakh crore which is a whopping 40% increase.
As I see a somewhat positive picture now, I stumble upon the sixth index. From where I can see, this whole exercise looks like bearing a socio-economic angle to it. It’s really not only about money, GDP, fake currency, black money, digitization etc but is more about how confident & secure will the drug dealers & money launderers feel and how will the left-outs feel themselves to be a part of an inclusive India. The effectiveness of a system lies in the fact when a road side, paan waala comes ahead by himself and pays his share of taxes believing in the cause of a better India & a multi-millionaire money launderer is scared to hell and is forced to change the occupation contributing positively for a fairer India. To build such a strong and responsive system, demonetization is perhaps only one step. If the govt is serious about the bigger socio-economic picture then I anticipate many more moves in the near future. The moves which fill the hearts of scare-mongers with scare and the gentle souls with the gentleness of a uniformity and honesty.
As a rational man, as I proudly am ;), I will rather keep an eye on these 6 indexes, instead of going all out and criticizing every move like a perplexed person. Will prefer to watch over my own concluding words, the words I can't chew back.

Let’s pray to god, Amen.

 V R Bhardwaj
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