Briefly states follow up actions that the Modi Govt. in India needs to take after its demonetization of high value currency notes on Nov. 8, 2016

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India’s Demonetization of High-value Currency: A Life Saver & Game
Changer for Prime Minister Modi
Shantanu Basu
PM Modi’s announcement of demonetizing Rs. 1000 and Rs. 500 currency notes from midnight
was long overdue. The grounds cited by him were entirely plausible, particularly the frightening
prospect of such currency fuelling terrorism and related crime and sleaze, all of which I have
closely but helplessly observed in over three decades of public service. This game-changer
would impart far greater transparency and accountability in business and governance. For the
first, perhaps the only time in 29 months of his tenure, Mr. Modi has swept aside likely
objections from many within his government’s ranks, at both political and bureaucratic levels.
My compliments to PM Modi! It comes as a life saver for his govt. increasingly being seen to be
indecisive, short on experience, foresight and talent and slave to bureaucratic manipulation.
Although this move was being hotly discussed over the last 6-8 weeks, its suddenness has
certainly caught everyone by surprise. This move demanded the highest degree of secrecy and it
was not breached. However, there are consolidating steps that need to be taken, some
immediately, the rest in the next 2-3 years:
1. Forcing demonetized currency into banks for exchange limitlessly is a shrewd
move. It will add to deposits with banks overnight while laying open such
depositors to IT/ED/DRI scrutiny. However, a one-time facility alone ought to
have been granted to depositors, i.e. not more than a single declared deposit
per bank account. That would have reduced queues and brought in the moolah
in larger and easily monitored bundles. We are ingenious otherwise!
2. Switch over to plastic currency notes for all denominations that are much
more difficult and expensive to duplicate and last far longer than paper ones;
minting coins for lower denominations too is uneconomical and not difficult
to duplicate, hence the switchover to plastic notes for all denominations needs
to be contemplated. Further, is it possible to embed a smart I-D chip in notes
of Rs. 2000 to check for authenticity? The notes that Shaktikanta Das (Secy.,
Economic Affairs in the Union Finance Ministry) showed on TV did not seem
to be plastic ones.
3. Since real estate is perhaps the single largest generator of black money, why
not mandate sales of building materials by pre-paid cards sold by
manufacturers through their dealers and sales restricted to such cards alone
above an individual value of Rs. 5000? Govt. of India has innumerable points
of public contact through which pre-paid debit cards up to a value of Rs. 0.50-
5 lakh can be issued by card providers, rechargeable in denominations of Rs.
1000-10000. Such cards could be sold by post offices, GIC/LIC branches,
DJB offices, Mother Dairy booths, public utilities like BRPL, CESC,

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Registrars of Assurances/Properties, FMCG manufacturers, POL companies,
IGL, travel agents, etc. to sell pre-paid cards via their authorized dealers
against DDs/BCs and restrict all payments for goods/services above individual
transactions above Rs. 5000 through such cards only. State govts. similarly,
could be mandated to sell pre-paid debit cards for various denominations to
pay for govt.-rendered services for all individual transactions above Rs. 500.
Cards would also take the pressure and costs off currency management by
RBI.
4. Since the above measures would require the addition of several lakh new POS
terminals, the Finance Ministry would have to budget for a one-time subsidy
of at least Rs. one lakh/terminal, adding twenty lakh terminals per annum, i.e.
Rs 20000 crore per annum, an easy budget sum for 2-5 consecutive fiscals,
shared 40% and 60% between the Union and states respectively, adjustable
against GST transfers to states. About 25% of such terminals could be mobile
wireless ones connected to the new BSNL OFC network under construction.
Once such large-scale POS facility is established, the neighbourhood grocer
could be safely brought into the GST net even if his annual turnover were way
below Rs. one crore.
5. Since agriculture, pisciculture, fishery and horticulture, particularly the
premium holdings above 25 acres ought to be mapped (for irrigation and
power facilities) and a flat rate of income tax imposed say @ 20% of
estimated income. Units that also have manufacturing, packaging facilities
and landing strips (for produce) ought to be taxed at 30% since export returns
are manifold larger. This will reduce revenue leakages substantially as also
curb the amount of black money in the economy.
6. Introduce a single-point online KYC data system that would link/cross-link by
each ID proof unique no., PAN/TAN/TIN and FI customer I-D no. and
provide for automatic online updating and authentication by linking to servers
of such proof-issuing agencies. There would be no need for customers to
supply KYC documents on multiple occasions every two years. Based upon
such KYC, pre-paid cards could be sold to the public, at least those that have a
bank account, PAN, etc. Pre-paid debit cards could be loaded with KYC
details for verification at its point of sale. These would also obviate forged
KYC documents being submitted by unscrupulous customers and save clerical
labour for the agencies and attendant physical storage issues.
7. Since these debit cards would be machine readable, they could also unify
PAN, TAN, TIN, DL, registered immovable properties, birth & marriage
certificate nos., passport ID, fingerprints, iris images, photographs, etc. in
them and hugely bring down costs of administration and universal access by
multiple agencies.

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8. Governments themselves are amongst the largest direct generators of black
moneys. There are huge irregularities in payments made by Union and state
govts. every year. That is why nearly all states are fiercely resisting joining
the GoI-sponsored Integrated Financial Management System (IFMS). Large
payments in cash are being made each year running into several thousand
crore and illegally assigned to third parties. Much of these often land in anti-
national hands. The US Federal govt. has a system of pre-loaded institutional
debit cards that are operated by a designated officer. Why not introduce
similar identical cards for use by Pay & Accounts and Drawing & Disbursing
Officers in denominations of Rs. 10-99 lakh each, subject to replenishment by
Pay & Accounts/Treasury Officer as per budget allocation? There are many
more leakage points that involve several thousand crore Rupees more but
those are not the subject of this write-up.
9. Provide suitable incentives to online aggregators to bring together diverse
services and goods into online portals that would centralize receipts of debit
card payments and onward transmission to supplying dealers. This would
leave adequate consolidated e-audit trails for various agencies.
10. Unrelated as this may sound, I understand CISF detachments at airports do not
have powers to search passenger bags for currency unless they have a tip-off,
that too mostly during elections. Why not have all passengers fill a declaration
if they are carrying more than Rs. 25000 in cash on any domestic flight?
There are unobtrusive currency-detection scanners that are commercially
available and used at major western airports. Why not deploy these at Indian
airports and railway stations? Toll gates on major highways could also have
high-speed car scanners for this purpose.
The public will face untold misery in the next 3-4 weeks, there will be innumerable PR
disasters galore for the govt., Rs. 100 notes will be sold at a premium, and people will be
frequently short changed, and much more. However, a reformist nature of such gigantic
proportions invariably carries a period of inconvenient transition.
The author is a senior public policy analyst and commentator