As
I write this blog post, television channels continue to beam images of long
queues outside banks and ATMs, interspersed with bytes from harassed citizens.
Clearly, the surprise announcement demonetising bank notes of INR 500 and INR
1,000 has caught several on the wrong foot, and disrupted day-to-day life.
But
while the focus is on disruption, there’s an interesting
undercurrent that many have overlooked.
A
day after the announcement, I met my cousin whom we shall refer to as ‘P’ (the
secrecy is for obvious reasons; I don’t want to be ostracized by my family :)).
‘P’ was livid to put it mildly; he said: “I voted for Modi and yet he has
ruined my business”.
My
cousin makes a living as a trader in the auto spare parts industry. He conducts
a significant portion of his business transactions in cash, and by and
large stays outside the tax purview. Now he is apparently engaged
in ‘creative’ consultations with his accountant, which include documenting
back-dated sales transactions and paying taxes as well.
To
be fair to ‘P’, he is a small fry in the larger scheme of things, a minion
compared to the big fishes whose sizeable unaccounted cash was the target of
the demonetisation drive. However, both ‘P’ and the big fishes represent that
section of the population, which firmly believes that they are
justified in not paying taxes. To clarify, I’m referring to wilful
disregard of law, not ignorance of it.
On
the other side of the spectrum is the ‘cheque and TDS’ brigade of the
population. Salaried individuals, for instance, who have over the years
accounted for all their earnings, and paid taxes. The ‘cheque and TDS’ brigade,
while suffering through long queues and a liquidity crunch, is nonetheless
gleefully smiling at the woes of the ‘why should we pay
tax?' brigade. Oddly, in the midst of disruption, they’ve
found vindication—for paying taxes, filing returns, not
possessing unaccounted wealth— for being law-abiding citizens.
The
polarization is perceptible everywhere from the streets to discussion boards.
On a lighter note, the last time the Indian population was so polarized, was in
2013, when the man who announced demonetization—Prime Minister Modi—was named
as the BJP’s prime ministerial candidate for the 2014 Lok Sabha election, and
that worked out well for him.
Back
to serious stuff. Several sections of the media are carrying reports on the
flipside of demonetisation. Predictions range from a short-term disruption in
economic growth, to the upside of a good monsoon being wiped off, to a
structural damage to the economy and a prolonged bear phase in markets. To
my mind, these are educated guesses at best, because we are in unchartered
territory. How the demonetisation gambit plays out over the long-haul is
anyone’s guess.
However,
what we can be certain about is how the aforementioned segments of the Indian
population will act going forward.
First,
the ‘cheque and TDS’ brigade. Make no mistake, this brigade will go
from strength to strength. Existing members will continue to walk the line;
also, its ranks will swell, thanks to new recruits who will see the upside of
being on the right side of the law.
Then
there’s the ‘why should we pay tax?’ brigade. Sadly, it will
be naïve to believe that one brush with the law will instantly reform
every unscrupulous individual. But what will change is the way they
operate.
Existing
systems which help them evade taxes and get away with it, will be disbanded.
Instead, they will be forced to manufacture alternative ways and means to
continue their corrupt practices. More importantly, thanks to the precedent of
demonetisation, such individuals will be forced to constantly look over
their shoulder. One can hope that over time, the combination of fear along
with more anti-corruption regulations will deliver the desired
results.
As previously mentioned, how demonetisation plays out over the
long-haul is anyone’s guess. But if shivering spines of several tax
evaders are an indication, demonetisation deserves at least a
thumbs up.
