Demonetisation Archives - Lokmarg

‘₹2000-Note Withdrawal Will Pinch Only Hoarders, Not Commoners’

By LokMarg 6th June 2023

Nitin Khanna, a Chartered Accountant based in Lucknow, says the current currency withdrawal is soft demonetisation, not comparable to the 2016 exercise. His views:

Withdrawal of high-denomination notes is a routine exercise the world over and is often used as a measure to curtail black marketing and bring the hoarded currency into formal circulation. We all remember how it created panic in 2016 when both ₹1000 and ₹500 notes were withdrawn, causing much distress to common people. This time, however, the issue is different. Allow me to explain.

First, this time the withdrawal is a soft demonetization process. There is four-month window to exchange the notes which gives ample buffer and breathing space for the exchange. More important, ₹2000 comprises only 10.8 per cent of total printed currency in circulation as the printing of this highest-value legal tender was stopped in 2018-19. So, considering the long period for exchange and the low volume of notes soften the process.

Besides, the poor masses hardly keep such high-value currency notes in hand while the middle class has them in small volumes. So, the only section which may feel the pinch is the hoarders of large amount of cash for transactions outside the ambit of taxation. Thus in the end it will only benefit our formal finance sector.

ALSO READ: No Need To Rush For Exchange, Advises RBI

The cash component is used mostly for high-value real estate transaction or in sale and purchase of precious metal and stones. This is the reason, that there was a sudden spurt in real estate or jewelry shops transactions soon after the announcement of ₹2000 note withdrawal. Being a Chartered Accountant, I noticed this myself. So, the unaccounted currency is being pushed into formal circulation. This is a good sign for the economy.

On the lighter note, the move is bound to bring more income tax litigations for professionals like us. As I mentioned transactions have shot up from the minute the RBI declared the withdrawal. Individual fresh sales of ₹2-3 crore against available cash balance are being reported every day. This means more work for CAs and finance professionals. There are still pendency related to tax litigations from the demonetization of 2016 and now this fresh ‘outbreak’. You see we have more work at hand now.

One negative aspect of this announcement is that many shopkeepers are refusing to accept ₹2000 notes though there are some cases where shops-owners are welcoming customers with offers to use the same currency notes. But overall, the Reserve Bank of India has laid down very lenient process for exchange and re-use of these notes. So for the common man, there is little to worry about.

People must realize that every currency note has an expiry date or value period. This is particularly true for the high-value denomination. It is thus desirable to use digitized or formal procedures while making high-value transactions in a sale or purchase deal. Taxations reforms will continue to create hardships for black marketers and tax-evaders.

As told to Rajat Rai

Supreme Court Upholds Govt’s 2016 Demonetization Decision

By LokMarg 2nd January 2023

The Supreme Court on Monday upheld the decision of the Central government taken in 2016 to demonetize the currency notes of ₹500 and ₹1,000 denominations.

A five-judge Constitution bench dismissed a batch of petitions challenging the Centre’s 2016 decision to demonetize Rs 500 and Rs 1000 currency notes and said the decision, being the Executive’s economic policy, cannot be reversed.

Supreme Court bench said: “There was consultation between the Centre and the RBI before demonetization. There was a reasonable nexus to bring such a measure, and we hold that the doctrine of proportionality did not hit demonetization.”

The apex court had reserved its judgments on the batch of 58 petitions on December 7.

Earlier, it had asked the Centre and Reserve Bank of India to place before it the records pertaining to the 2016 demonetization decision in a sealed envelope.

It had said that it has the power to examine the manner in which the decision for demonetization was taken adding that “the judiciary cannot fold its hands and sit just because it is an economic policy decision”.

The top court’s remarks came when the Reserve Bank of India counsel made the submission that judicial review cannot apply to economic policy decisions.

The RBI had told the apex court about the objective of the demonetization policy to curb black money and fake currencies.

Attorney General R Venkatramani had said that the economic policy of demonetization was connected to a social policy where three evils are attempted to be addressed. (ANI)

‘Centre Did Little To Help Businesses Amid Covid’

By LokMarg 7th April 2021

Biplob Basu, 34, a food entrepreneur, says small businesses suffered due to demonetisation, GST and there was little help during pandemic from the BJP-led government at the Centre

My story is one for the books. Both my parents are doctors but I pursued Hotel Management and chose to be a food entrepreneur. And it hasn’t been a smooth ride. The year I opened Petuk, a home-based eatery with a catering division in Kolkata was also the time when politics began over the palate. What you were eating and serving came under scanner.

People with no understanding of Bangla food, wanted to dictate what others should or should not eat. I would therefore prefer a government which is open-minded and understands plural cultures and cuisines.

There are other reasons too why I would choose Mamata Didi’s Trinamool over the BJP. My food venture had just about begun to break even in 2016 when the Centre announced demonetisation. It was taxing time as people queued before ATMs and eating out was not a priority. Just about when that phase was over, the GST (goods and services tax) was rolled out. My expenses (taxation) rose but not my earnings.

I was barely able to understand the nitty gritty of GST when rumours spread in Kolkata that many eateries were serving carcass meat. People in food business came under stress for two years (2018-19).

***Biplob Basu is against mixing politic and palate***

I waded through all this and stepping ahead of home-based catering, I opened a restaurant at Hazra (Kolkata) in 2018. A little over an year, and I managed to open another restaurant in Jadavpur in December 2019. And then the pandemic struck, strict lockdown was announced.

The new restaurant was at a rented property. I had to pay the rent, salaries of the staff, while there was no income. That broke my back. I am sure other MSMEs like me suffered a lot too, but Bengal also faced a cyclone (Amphan) during lockdown.

ALSO READ: ‘How I Turned The (Dining) Tables On Covid’

Even when the ‘Unlock’ began in phases, the business did not pick up. I was forced to shut one of the restaurant. I read about Central assistance to small and medium businesses so I went to apply for an MSME loan, only to realise that the process was lengthy and cumbersome, not beneficial for ventures like ours.

Now, with elections upon us, it is payback time. I want a party in power which understands that their decisions taken at the spur of the moment can adversely impact lives of people for years to come. I want a government that can create both a good social and business environment. I want a government that understands people as individuals and not a homogeneous groups with a single story. Clearly, my choice is the incumbent party. I am very happy with the way the Mamata government handled the pandemic.

There were strict checks at regular intervals to see if business units were following all due measures from face masks to hair masks, to regular sanitization of the premises to temperature checks. My entrepreneurship spirit is still alive and kicking and I will definitely steady myself up; all we need is a government that can put a spark into the hospitality sector again.

As Told To Yog Maya Singh