Raising the risk | Value Research The demonetisation drive will discourage those who amass black money by infusing in them the fear that they may just lose all of it suddenly

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Raising the risk

The demonetisation drive will discourage those who amass black money by infusing in them the fear that they may just lose all of it suddenly

Raising the risk

Far from settling, the dust of the recent demonetisation is still rising up in the air, making it difficult to see too far. And yet, a few things are already clear. One - and this should actually come as no surprise - there is overwhelming public goodwill for the move. This even has electoral proof now with some fortuitously timed by-elections. Two, the implementation is below par and I really hope it improves sharply. And three - it's here that I stick my neck out - the true success or failure of the demonetisation will depend on how much it changes the hearts, minds and attitudes of Indians about black money in the future.

Note that I say 'how much it changes' and not 'whether it changes'. For far too many people are seeing the success or failure of the demonetisation as an either-or event: either black money gets eliminated or it doesn't. It is in the nature of this process that neither outcome is likely. Some percentage of existing cash holdings will evaporate; some percentage of value held in benami real estate will disappear. If this process reaches 50-60 per cent alone (Modi has promised more), even that would be a great achievement.

However, the real kicker will have to be the change in hearts and minds. A few days after the demonetisation, there was news that a local gutkha manufacturer's offices and plants in the NCR had been raided by tax officials and cash of a few hundred crores was detected. This kind of a news makes one not only angry but also sad. Think of this person who must have built up his business over decades. He must have enormous entrepreneurial skill and initiative. It's really hard to grow a business beyond a small size in India; the sheer range of problems you have to solve on a daily basis, without respite, overwhelms most people. A man who does all that is someone to be respected, one of a type that India needs in large numbers. Except that clearly, he does not want to pay any taxes.

It's quite tragic really for the country as well as for such individuals. What would have happened if this person had paid all his taxes? He would have had 30 per cent less but all white money. A person of my view of life would say, 'What's the big difference? You're still very, very, rich!' But that's not the way a vast majority of businesspeople seem to think. The question is, why don't they? Why do they want to take the risk of losing it all at some stage? The answer is clear: there is effectively no risk. Given the tremendously corrupt and incompetent tax department that we have, earning and keeping vast amounts of black money are practically risk-free. Though it's inconvenient, at a small cost you get plenty back. And the inconvenience is actually more for honest taxpayers.

That was the story till now or rather till the midnight of November 8, 2016. The demonetisation is merely one part of the story. What Narendra Modi has set out to do is to dramatically raise the risk in accumulating black money. If, going forward, everyone earning and accumulating black money knows in his heart that it could all vanish one day, then most of them wouldn't accumulate black money.

This brings us to the next player in this drama, which is the weakest link in Mr Modi's chain: the tax department. This entire system of evil exists because of corrupt politicians and officials. It started with them, not with (non)-taxpayers. And, therefore, the end must start from there, too.

This is Modi's real challenge. There will be costs to be paid by all parts of the economy. And yet, the payoff is so huge that black money must be fought. Not that Modi needs any encouragement. He is both the Krishna and the Arjuna of this war - the warrior and the inspirer rolled into one. It isn't an option to have any doubts now.

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