In November, the Governor of the Reserve Bank of India, Urjit Patel, said there was a ‘confluence of thought’ in the government and the central bank to deal with black money by removing existing Rs.500 and Rs.1,000 notes as legal tender. Now, just about ten days before the deadline to deposit these bank notes into accounts, a similar confluence of ideas has led to a stunning decision to make it harder for people to do so. The new caveats, announced on Monday, restricting deposits over Rs.5,000 (roughly $70) are not just difficult to fathom but also constitute an unfair change in the rules of the game. Those opting to disclose unaccounted income under the new amnesty scheme, the Pradhan Mantri Garib Kalyan Yojana, face no restriction on depositing old notes. But anyone depositing Rs.5,000 or more into a bank account will have to satisfactorily explain to two bank officials why this was not done earlier. However, the Finance Minister has suggested that such explanations will not be required for anyone making a deposit for the first time. Apart from the human tendency to act only when a deadline nears, there could be genuine reasons for people not to have queued up at banks till now — including their faith in the Prime Minister, as well as the Finance Minister’s statements that they had till December 30 to do so.
Overstretched bankers may somehow cope with this latest diktat. But implementation is likely to be arbitrary as each bank branch may come up with its own ground rules, just as they are doing in the case of cash withdrawal limits. Nevertheless, tasking them to record and flag for audit purposes deposits amounting to just 1.66 per cent of the personal income tax threshold is tantamount to outsourcing the taxman’s job to the banker for no ostensible revenue pay-off. Initially, the Centre said deposits up to Rs.2.5 lakh would not be questioned, but later held that all deposits could be scrutinised — even though the Income Tax Department will struggle to complete scrutiny of lakhs of accounts within the legally stipulated two-year deadline. The Prime Minister had said exchange limits for old notes would be enhanced from November 25; instead, the exchange facility was stopped altogether. By December 10, Rs.12.44 lakh crore, or 80 per cent of the old notes, was back in the system, and by December 30 most, if not all, could well return. Perhaps spooked by that prospect, the Finance Ministry suggested that double counting may have skewed the numbers, but bankers have dismissed that possibility. The latest flip-flop to make deposits difficult appears to suggest that the government is itself in panic mode over its bold gambit.
Overstretched bankers may somehow cope with this latest diktat. But implementation is likely to be arbitrary as each bank branch may come up with its own ground rules, just as they are doing in the case of cash withdrawal limits. Nevertheless, tasking them to record and flag for audit purposes deposits amounting to just 1.66 per cent of the personal income tax threshold is tantamount to outsourcing the taxman’s job to the banker for no ostensible revenue pay-off. Initially, the Centre said deposits up to Rs.2.5 lakh would not be questioned, but later held that all deposits could be scrutinised — even though the Income Tax Department will struggle to complete scrutiny of lakhs of accounts within the legally stipulated two-year deadline. The Prime Minister had said exchange limits for old notes would be enhanced from November 25; instead, the exchange facility was stopped altogether. By December 10, Rs.12.44 lakh crore, or 80 per cent of the old notes, was back in the system, and by December 30 most, if not all, could well return. Perhaps spooked by that prospect, the Finance Ministry suggested that double counting may have skewed the numbers, but bankers have dismissed that possibility. The latest flip-flop to make deposits difficult appears to suggest that the government is itself in panic mode over its bold gambit.
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