Home / Columnists/ Black money and the war on cash; the challenge for the Government

Black money and the war on cash; the challenge for the Government

Comments / {{hitsCtrl.values.hits}} Views / Friday, 11 August 2017 00:00


01 02Last year India in an effort to combat corruption, tax evasion and counterfeiting, withdrew all 500 and 1,000 rupee banknotes from circulation. Many international bankers argue with me that India failed miserably in its demonetisation effort. 

The Modi Government’s publicly-declared demonetisation objectives publicly was that the Government wanted to transform the economy into a digital economy. We know we can’t completely transform an economy to a digital economy overnight; there are various social classes, example a waiter or steward receive tips, a household worker gets some extra money for a job well-done, Parliamentarians get political funds, even some professionals have foundations to earn their donations and sales from books, parliamentarians or politicians have their own foundations established to get donations and then politicians partly use those money to uplift certain communities.

Even clergy use money they receive to uplift social standards of communities and to look into their welfare; if you take establishments such as the Roman Catholic Church, it has over $ 60 billion real estate assets around the globe in the name of church lands, missionary schools, etc., that was purchased from the money that they got from devotees which went to clergy and the Vatican. 

Just imagine what will happen if Citizen Fernando has to donate money by a mobile app that sometimes is not even properly working to transfer money to a temple, kovil, or church, or even a mosque, etc. There will be hell to pay all round.

Black money

In the Indian demonetisation effort, if the real objective was to attack the “black money” stored by the political, temples and business elite, it has failed. Around 90% of the demonetised notes were returned to the banks, far more than the Government expected. This means, as the British Guardian explained, “Either the Indians concealed less wealth from taxation than was thought, or that money has been preserved in the form of goods or gold rather than cash.” 

In fact, according to economists, very probably less than 3% of “black money” is held in currency. In an Indian context it is still big money. Almost all of it is either converted into gold (it is said India has by far the largest private gold reserves in the world), or put into purchases of jewellery, real estate, or land, when it isn’t put into financial investments. And then when all that money goes in to their bank accounts or other establishments that money too comes to the so-called ‘white’ system, this shift overwhelmingly helps GDP to look good. 

Gambling (casinos) is said to be one of the world’s biggest industries that creates wealth among various social classes, and there are gambling moguls around the world who own banks, finance companies, real estate, even in USA there are poker players who become rich overnight and then their wealth transfer into various other establishments when they start using that money; one such example is a spa owner, their extra earnings transform to various other business establishments when they purchase goods and services.

Drive away

A full digital economy will drive away lots of people and perhaps increase poverty if digital transformation is done by creating 03limitations and wealth limits. Although India implemented practices of demonetisation, if you watched NDTV and other TV News in the last few months you will clearly understand that certain new grey economical activities started as a result of the moves. 

There were Indian banker families or officials, new brokers who started taking thousands of Indian rupees worth of kick-backs from common people to deposit the money under various other names and newly-created accounts in India as there were new taxes for deposit limits. Many people faced identity theft as a result too. India being the world’s largest democracy has the most business-savvy politicians, but even they are people who transform wealth to various other religious and social establishments.

Impacted poor people

Several top economists have said globally that what India did was a failure, and it only hugely troubled poor families and especially older people’s savings. India is the largest gold consumer and India’s activity in impacting global gold prices took a different turn because of demonetisation. It enabled the digital currencies such as bitcoin to overtake the gold price in international markets in the last three months and even if you take bitcoin, people trade in those digital currencies and their capital gains are transformed to other asset classes in the real world, finally resulting in the real economy losing. 

I’ve previously written about the possible ramifications of the ‘war on cash,’ which is now strengthening all over the globe, even in the US Many policymakers, including former Treasury Secretary and President Emeritus, Harvard University Larry Summers with whom I have discussed this subject, are in favour of axing the $100 bill. 

In May, the European Central Bank (ECB) said it would stop printing the 500 euro note, though it will still be recognised as legal currency. The decision to scrap a banknote is now largely hinged on its association with money laundering and terror financing than with economic reform.

(The writer is a thought leader.)

Share This Article

Facebook Twitter


1. All comments will be moderated by the Daily FT Web Editor.

2. Comments that are abusive, obscene, incendiary, defamatory or irrelevant will not be published.

3. We may remove hyperlinks within comments.

4. Kindly use a genuine email ID and provide your name.

5. Spamming the comments section under different user names may result in being blacklisted.


Today's Columnists

Difference between a woman and a man (yin and yang) and finding solutions to violence in society

Thursday, 18 July 2019

This is not at all a philosophical discourse on gender differences, or the complementary roles of yin and yang (women and men) in social or biological formation. This is also not to speak about who is superior among the two. This is just an observati

I wish Sajith Premadasa had taken up a challenging ministry to showcase his prowess

Thursday, 18 July 2019

Expectations, father and son Sajith Premadasa has put his hands up for leadership in the party and for nomination by the United National Party in the forthcoming presidential elections. I wish Sajith had tested himself, and had given the public a cha

Foreign Affairs and Defence to be one portfolio?

Thursday, 18 July 2019

Unless we are all suffering from dementia, the last experience with a foreign military on our soil should be very clear in our heads. The Indian Peace Keeping Force landed in Sri Lanka to supposedly bring peace to the war-torn country when the LTTE t

Federer lessons for Sri Lanka tourism

Thursday, 18 July 2019

The Wimbledon Men’s Final in 2008 was termed as the best match the world has seen between the two arch rivals Federer and Nadal. But, what we saw last Sunday between the two of them after 11 years sure shocked the world. Many just asked the questio

Columnists More