A multi-pronged strategy of criminalising possession of Rs 10 lakh or more in cash and cutting down discretionary powers of government officials are some of the steps the government should take to tackle corruption, says IIM- Bangalore don R. Vaidyanathan.
“Demonetisation is the only step. The government should also make it a crime to hold liquid cash of Rs 10 lakh and above. Today, it is not a crime. Why should an individual hold huge cash?” he said.
Lowering the tax rate to expand the taxpayers’ base and tax revenue and moving towards smaller denomination notes are some other steps to curb corruption, says Vaidyanathan, who teaches finance at the Indian Institute of Management – Bangalore.
According to estimates, five per cent of the Indian Gross Domestic Product (GDP) every year is black economy. Around Rs 600,000 crore of parallel economy is not small, he told IANS.
Vaidyanathan said he had been advocating demonetisation of Rs 500 and Rs 1,000 value currency notes, which the government did on November 8 night.
“I have been telling this (demonetisation) since 2012. I watched the electoral politics of Tamil Nadu and Andhra Pradesh. A significant amount of money was seized there by the Election Commission. In the last assembly elections in May, around Rs 100 crore was seized by the Election Commission in Tamil Nadu,” he said.
“Most of the seizure was in Rs 100 and Rs 500 notes. Further, the proportion of Rs 500 notes in circulation was on the rise,” Vaidyanathan recalled.
The nation incurs additional expenditure on printing new notes to meet the demand as individuals hoard the ill-gotten cash, the financial expert said.
He said government regulations have become an instrument of extortion and hence the discretionary powers vested in bureaucrats/ministers should be abolished and governance should be strictly rule-based.
“The judicial process should also be swift and fast to instil fear of rule in the minds of people,” Vaidyanathan added.
According to him, there should be less of governance by the government but more of self-governance through self-regulation, coupled with severe punishment for violations.
He said the government should confiscate the assets of corrupt government employees.
“There are business tycoons earning Rs 300/400 crore as dividend income. Such dividend income is not taxed. This system should also change,” he said.
He said in order to fight fake currency vended by automatic teller machines (ATMs), banks and/or ATM operators should be held responsible for cash dispensed by their respective ATMs.
Vaidyanathan advocated that India should follow the US ratio of 1:10 in respect of currency note denomination.
“The US has the policy of 1:10. That is, the highest note value is 10 times that of the lowest note value. Similarly, India should also move towards having more of Rs 100 notes than notes of higher denominations,” he said.
According to him, out of Rs 17 lakh crore currency in circulation, notes of Rs 500 and Rs 1,000 account for around Rs 14 lakh crore.
About bringing back cash stashed abroad and not meeting expectations on black money recovery, Vaidyanathan said: “Such efforts need proper planning. Bringing back black money is not like cooking two-minute noodles.”