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46 Years On…: POVERTY SELLS, By Shivaji Sarkar, 28 Nov, 2016 Print E-mail

Economic Highlights

New Delhi, 28 November 2016

46 Years On…


By Shivaji Sarkar


Poverty sells even after 46 years of Indira Gandhi’s slogan “Garibi Hatao”. In fact, Prime Minister Modi’s demonetization is being seen by the marginalized and middle class as another opportunity to end poverty and establish equity in society.


Notwithstanding, the problems galore people at lower end of the spectrum are suffering. Think. The shopkeepers are unable to sell products on cash payment, jewellery shops are closed for over 20 days and export business is hit. The Food Corporation of India too is paying higher procurement prices for wheat. It has jumped from Rs 1900 to over Rs 2300 and other farm produces are becoming expensive.


With businesses coming to a standstill, a provoked Tata group Chief Ratan Tata has reacted sharply. Depositors who have saving mainly in home are unhappy as deposit rates are being slashed. Already, cash flow have touched Rs 5lakh 11,000 crores in banks and another Rs 33,000 crores has been realized in cash exchange till Nov 18.


Some say they are losing faith in banks as over six lakh debit cards were blocked in October as data was compromised. Adding to woes electronic transaction witnessed larger number of frauds, including credit card cloning, misuse of debit cards as also steady rise in site-cloning.


Besides, the international system has yet to solve the $ 89 million electronic fraudulent transfer from Bangladesh. If deposit rates continue to be slashed and transactions remain risky, why should people keep their money in banks?


Pertinently, people have started seeing banks as agents of the super rich which write-off their large loans, given out of savings of the poor. Undoubtedly, the Rs 12 lakh crores NPAs are being seen as swindling of their deposits. Arguably, is not demonetization stacking up the bank kitty and heaping problems on the poor? Specially as the poor are unable to access their own money.


Cash has vanished from the cash-only Indian market and citizens who are queuing up at banks and ATMs are finding out there is no money in these. Query them on how they feel, the pet answer is: “There is problem but Modi is doing something good. The poor will have a chance now”.


A mid-level farmer in central UP’s Kannauj district says farmers too are facing problems as cash has exhausted. This is not all. Even as local markets are non-functional, labourers and the marginalized are happy “because their employers are in distress”. The small kisan is happy as his debts have been repaid by the same rich man with old currencies. Now he can repay him without any interest.


However, a Kanpur trade association leader while agreeing that farmers and the trading class normally deal in cash for easy transaction and have paid taxes on their income, yet the ban on exchange of notes is hurting them. This is not black money. Meanwhile a UP Minister confesses that instead of paying salary to his staff he is making bundles of Rs 500 notes as blank-cheques to shopkeepers who will fill it up with their names.


An octogenarian woman in West Delhi burst into tears on 9 November as she had saved Rs 45 lakhs of her husband and son’s income over decades to give gifts for her grandchildren and acquaintances. Women mostly reacted sharply asserting that “the decision is impractical. Nobody understands the plight of the women. None consulted a woman even in a high position before such a severe act”. As many women do not like to go to banks.


Even Rashtrapati Bhavan wants cash. It sought Rs 64.5 lakh cash from the Finance Ministry to pay salaries to the staff in November which was granted. Further, Finance Minister Jaitley too accepts that the move has slowed down the market but is optimistic that after a short phase it would help the country cleanse black money. Adds, the CMIE,  the retail market would take a Rs 1.28 lakh crores hit and banks Rs 35,000 crores thereby forcing them to raise charges.


Importantly, international rating agencies Fitch and Moody are skeptical.


Will the India’s poor be a happier lot? This is difficult to say. Specially against the backdrop that since 1971, even after banks nationalization and many schemes, poverty has increased in absolute terms. As per official data the average income of 87 per cent Indians ranges from Rs 5,000 to 10,000 equivalent of Rs 100 to 500 in 1971.


Additionally, the poor also experienced severe inflation post the 1971 ‘Garibi Hatao’ slogan. Whereby, it touched over 13 per cent in 1974. The recent money supply constraint has not only delayed sowing, stranded trucks but has resulted in cereals prices rising, notwithstanding a record fall in wholesale prices. Many citizens wonder if this will rise further and how they would brave the situation.


Worse, the rupee is losing its value post demonetization. On 11 November it was Rs 66.72 to a dollar. On 24 Nov it sunk to Rs 68.75, with the market predicting a further fall. This is just not because of the hope that the US Federal Reserve is likely to hike interest rates. The market is agog that demonetized notes are being exchanged for the dollar. In the unofficial market, the dollar is said to cost over Rs 70.


This has led to speculation that the future black money would be held in dollars, euro and other foreign currencies. It is also an indicator that the currency is losing trust.


True, no reliable estimates are available on the distribution of untaxed income. It can at best be around 4 per cent – equal to those paying taxes. Since average income is low in India, mostly people are below the tax limit. A glaring example is the seizure of Rs 3.5 crores from a chartered flight from Hissar to Dimapur, said to belong to a Nagaland politician. Since he does not have to pay I-T being a tribal, it was returned to him without a demur.


That shows that black money can be turned to white – if one does not have to pay the tax as people in North-East and farmers. The collection is a pittance of around Rs 1.75 lakh crores even as the collection charges are the highest in the world. This creates an army of corrupt officials.


What next? The easiest thing would be to do away with I-T or cut tax to 15 per cent. This would lead to more money flow into the market and boost growth. Another imprudent act is to have TDS on bank deposits. More finance is shackled, more is the problem for the economy.


In sum, the Government has taken this step in sincerity. But this might not be enough. The poor needs a fool-proof system, a cushion against inflation, safe and easy maneuverability as cash promises. ---- INFA


(Copyright, India News and Feature Alliance)

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