The Indian economic policy making process is slowly resembling Alice in Wonderland. There is no coherent thinking process driving daily announcements from the finance ministry or the Reserve Bank of India. Demonetisation drama shows trial and error method is being experimented on 1.3 billion people in the name of fighting invisible demons.
Voodoo economics espoused by chartered accountant-cum-corporate lobbyist and backed by billionaire yogis have been given the cult status.
A Pune-based NGO Artha Kranti, which initially claimed paternity of the demonetisation policy, is now mooting abolition of all taxes and the imposition of banking transaction tax. To be fair to the NGO, it had proposed such a move in 2014 in the run up the general elections.
With virtually no statistical data and economic models to back the outcome of the banking transaction tax, the economy may witness another jolt and may ultimately defeat the much claimed purpose of demonetisation, namely shift to digital payment economy. Already, analysts are pegging down the GDP growth for FY17 to as low as 3.5 per cent from close to 8 per cent estimated earlier. RBI has lowered its growth projection to 7.1 per cent for FY17 from 7.6 per cent estimated earlier.
Reports emanating from the corridors of power reveal that the Finance Ministry and the Niti Aayog informally discussing imposing slab based levy on cash withdrawals. A final decision on levy threshold will be taken by Prime Minister Narendra Modi is expected to take final call on the issue and it is linked to availability of new currency supply.
Former Finance Minister P Chidambaram had introduced Banking Cash Transaction Tax (BCTT) through the Finance Act 2005, but removed it with effect from April 1, 2009 in the face of stiff opposition from then main Opposition—the Bharatiya Janata Party.
While announcing the withdrawal of tax, Chidambaram had rhetorically asked in April 2008: “How many people take out Rs 50,000 in cash in a single transaction in a day?” He had offered to share the names of some “big fishes” which were caught by the tax authorities with the help of cues provided by the banking cash transaction tax. The withdrawal had paved the law to deal with money laundering.
By exploring the reintroduction of a modified banking transaction tax, the Narendra Modi government is trying to turn the clock back through another means.
The economy is headed for tailspin after demonetisation and new set of unscientific ideas being tested on the people would bring untold misery. Already, several states including Bengal, have expressed reservation on the introduction of the Goods and Services Tax (GST) from the next financial year. No amount of bravado and tough talk can change the situation on the ground, except sound policy making and implementation.
The imposition of banking transaction tax would lead to dramatic shift to cash dealing as people would like to avoid multiple payment of tax on the same amount in case banking system was utilized. A single bulk amount could be withdrawn and the payment to subsequent individuals and groups would be in cash.
In a recent critique of demonetisation, former Prime Minister Manmohan Singh had said that way to hell is paved with the best of intentions.
May be it is time, the government pursues logical economic policies and not fall prey to self-styled economic wizards. For let the best idea win for the people of India.