3. Exploit Northeast region: The buzz in Kolkata is that this is the conversion route used by many politicians. Some tribal communities of the Northeast are exempt from paying income tax. According to reports, thousands of crores have been transferred from other parts of the country to the Northeast. While one light aircraft which took off from a flying school in Haryana was detained, all other consignments have gone unchecked. We have information that the government knows about this, but may not be able to do anything. Government establishments, including banks in the Northeast, are allowed to function only under a protection racket run by militants; the money is collected from their offices. “Which tax officer will risk his life and go after these accounts?” asks a senior government official. There is hardly any media coverage on this issue either.
4. Multiple, simultaneous withdrawals: In the initial days of the note ban, small businessmen in Gujarat deployed dozens of staff and unemployed youth to make repeated trips to multiple banks to exchange notes. I learn that bankers are under so much of pressure that they simply could not verify the same identification submitted repeatedly, or at different branches.
5. Jan Dhan accounts: It has already been widely reported that the balances in Jan Dhan accounts surged by tens of thousands of crores. It is facile to tell the Jan Dhan account holders not to return this money — they are beholden to landlords and moneylenders to do this favour.
6. Currency chests: People have been found with large amounts of new notes at a time the government was rationing it. Cash moves from currency chests to banks and from there to the branches. It is hard to believe that large amounts of cash was leaked from bank branches which were constantly under watch. Were the Reserve Bank of India’s currency chests compromised?
7. Cooperative banks: While the government had banned cooperative banks from exchanging old notes, multiple media reports show that this was easily circumvented in certain states.
I am told that the network of businessmen that dominates businesses across Kolkata and the Northeast have used all the above techniques in league with politicians to convert their cash. So successful were these tricks that after a few weeks of the note ban, the discount on old notes disappeared and for a while there was even a premium for old notes. Indeed, there is a suspicion that old notes deposited came back into the market, got deposited again and were double counted.
I gather that a senior bureaucrat, who led this campaign, believed that the note ban idea would work since it would be implemented by bankers and not the revenue department, which is seen as one of most corrupt government departments. Bankers turned out to be bad as any other section, rushing to cash in on “opportunities” and “incentives”. The government says it intends to track down black money convertors. It cannot possibly reach everybody and is bound to fail. As one businessman says, “The government cannot go after everybody, in the final analysis, it is between me and my assessing officer, who is now better empowered.” The real lesson for the government from the note ban is this: It is foolish to direct our lives through government fiats and yojanas. Frame simple rules and lower taxes, and everybody may benefit. In short, live up to the famous election promise of minimum government.
The writer is the editor of www.moneylife.in