Prime Minister Narendra Modi has unleashed one of the biggest reforms to cleanse the economy from black money. First, a Black Money Bill was enacted to bring back unaccounted money stashed abroad. Then came the Income Disclosure Scheme. And, then came the announcement of demonetisation of Rs 500 and Rs 1,000 notes on November 8. To trap black money hoarders trying to launder unaccounted income through the banking channel, the government is now amending Income Tax Act with a levy up to 85 per cent on black money deposits.
In an interview to Siddharth Zarabi of BTVi, Modi’s cabinet colleague and Railways Minister Suresh Prabhu explains the government's vision of a better India that is cleansed from the menace of black money, corruption and rent seeking, a India that will move towards less cash economy and a India where doing business will be easier.
The government may now step up spending in the Budget to spur demand, which will offset the impact of demonetisation on consumption.
SIDDHARTH: The demonetisation scheme was a big surprise. And now the Income Tax Act is being amended to wipe out black money. Was it conceived over a period of time? What is the outlook after demonetisation?
PRABHU: If you have read the comments of the Prime Minister and Finance Minister over a period of last two years carefully, they have been highlighting this point (curbing black money) all the time that they want to improve the tax administration so that the honest taxpayer doesn’t have to worry about it at all. There will be hardly an inter-phase between tax administration and the tax payer. Most of them will happen online and we are moving into that system. So therefore that is a philosophy. Therefore this particular amendment is essentially to deal with a particular situation, to deal with a contingency. But over a period of time the philosophy of the Government is very clear. The direction in which we want to move is that let’s get away with this, let the black money issue is properly addressed. Now start on a clean slate. Let people do good business. The government will support good business to progress. Tax administration will only collect taxes, which are legitimately due and through a proper system. GST is also coming. So there will be more and more IT based activities. Same thing can happen in Income Tax over a period of time. So direct tax, income tax and others, indirect tax and GST, all will happen through online monitoring system, less and less interference with the people. So that is the philosophy. You can’t blow hot and blow cold at the same time. Some of our friends are saying that this scheme is allowing the black money to be regenerated into another black money. People are trying to use dubious means to do it. So if the government tries to address it, there are the same people who are saying that this is the measure which is going to be counter-productive. So we are dealing with only a peculiar situation.
SIDDHARTH: And disclosure schemes have happened in the past also.
PRABHU: But this is something with the Prime Minister and the Finance Minister, the two most important functionaries, have always been saying this that tax administration will not harass the genuine taxpayers.
SIDDHARTH: I want to ask you a question on demonetisation from the perspective of the Railways. There have been some anecdotal remarks—no data has come—that there been a dip in freight movement or passenger traffic movement in the Railways and is that to be linked with demonetisation?
PRABHU: We are already seeing a decline in freight volumes but that is nothing to do with demonetisation. This has happened over the last few months. The coal movement has gone down. Cement and steel have also slowed down. But I will not attribute anything to do with the demonetisation.
In Railways, 58 per cent of the people use IT to book the ticket. What is the profile of the passengers? There are 33 million people who travel by Railway every day. Either they are middle class or the poor people. For them this is the only means of transportation. They are booking tickets through internet. When PM is saying let’s make a transition to cashless economy using IT, use your mobile as a bank.
SIDDHARTH: The Railway is already a leader in it.
PRABHU: And these are the type of people. They are not some high-ended people.
SIDDHARTH: So you are saying there is no dip that is attributable to it.
PRABHU: No, not at all.
SIDDHARTH: I want to move to a couple of questions with regard to the need for further measures. Now it is acknowledged like you also said that there is going to be some sort of short term impact. Between now and the closing of this financial year, would you agree with some economists who are also saying that some sort of stimulus is required. If demonetisation was an anti-stimulus which sucked out liquidity, now is it time to consider some sort of stimulus for the affected sectors of the economy so that they come back on track very fast?
PRABHU: First of all, let me put it again that I am not thinking that there is going to be an adverse short term impact either. For a same reason is that there could be at best people are just trying to estimate but I don’t think there is any empirical evidence or there is any data which is available to suggest that there is going to be a short-term impact. This is definitely my own opinion.
The second part is whether we should try to put more money to the system? We should always do that, because we have seen over the last few years the private investment is significantly lower and that is also because of capacity utilisation of the private sector. Some of the private sector companies who have made investments are not able to fully use their installed capacity. Therefore obviously there is a need to put in more investment coming from the government. Government is making investment and it has increased significantly over the last two and half years since the government in office. So we need to do more all the time. This is in fact as I said we need $1 trillion investment in infrastructure in the next 3 to 4 years. That means obviously to match up the requirement of that we need to put more money into system. But look at it globally. That is very interesting. China has got over capacity. That is why their capacity to produce is so great that they can dump goods anywhere in the world. In most of the global markets, the capacity utilisation is not full. So this is a global phenomenon. So in that context every country in the world is trying to find out how to boost demand, how to create economic activity and that is why public funding seems to be the only viable solution in the short term. So we also probably have to do that and we are doing that in anyway. So this is something which in line with the Prime Minister’s thinking that wherever there is a gap the government should step in and try to increase the spending.