1. Starting with demonetisation, prime focus on corruption has now moved to issue of digitising India

Starting with demonetisation, prime focus on corruption has now moved to issue of digitising India

On April 14, the Prime Minister extolled the citizens of benefits of Digi money and urged the use of Digi Dhan as part of clean-up India campaign against the menace of corruption while emphasising the need for extensive use of BHIM app.

By: | Published: April 27, 2017 6:07 AM
The relentless fight against corruption was also reflected in the Union Budget through restrictions on funding of political parties and on cash transactions. (Reuters)

On April 14, the Prime Minister extolled the citizens of benefits of Digi money and urged the use of Digi Dhan as part of clean-up India campaign against the menace of corruption while emphasising the need for extensive use of BHIM app. Earlier, in December last year, while introducing BHIM, the PM had also emphasised the virtues of cashless economy. And earlier still, one of the two objectives of demonetisation of specified bank notes was also stated to be corruption. The relentless fight against corruption was also reflected in the Union Budget through restrictions on funding of political parties and on cash transactions.

While it is apparent that the government is making concerted efforts, to eradicate corruption by targeting the stock of unaccounted money, there are numerous anecdotes that show that flow of unaccounted money has not been stalled, and hence relentless raids continue to be conducted across the country. Indeed, the menace of corruption is hard to address, especially the flow or fresh creation of unaccounted money. And that is where, the PMs exhorting to adopt Digi-Dhan and BHIM app are appropriately contextualised. The implementation of GST, with a trail of transactions would also help in identifying creation of unaccounted money.

The eradication of corruption is not only a social necessity, but has strong economic rationale. To create an environment of conducive growth and ensure ease of doing business, corruption has to be addressed specially in interest of our young demographic population. Corruption, in socio-economic terms, has both direct and indirect costs. While the direct costs are well known in terms of scandals and loss of confidence in administration, the indirect costs are debilitating causing low growth and higher income inequality. It can also erode ethical standards of citizens. Thus, it has significant impact on macro-economic stability and sustainable economic growth. It also impedes conduct of budgetary and monetary policy, weakens financial oversight and hurts inclusive growth. Corruption weakens government capacity to raise revenue and perform its core functions by diluting culture of complaints and increasing tax evasion. Corruption also inflates costs in public procurement process and undermines the quality, and even the quantity of public spending. The general costs also rise in the economy because citizens, manufacturers, and industrialists factor corruption in the pricing model. The uncertainty for firms also hurts growth of economy. Social and environmental concerns are relegated, and enforcement of environmental regulations suffer, leading to more pollution and over-extraction of natural resources.

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The prime focus on corruption, which started from demonetisation, has now moved to a closely related issue of digitising India. To achieve a less cash economy, India would need to develop a medium to long term plan for a seamless transition from the high cash economy that it is now, to extensive adoption and use of technology in conducting business and commerce in the country. In this period of transition, three phases need to be recognised. There are certain measures that can show immediate impact. Then there are some fundamental factors that need a longer time frame and only can change with persistent and concerted efforts. And finally, there are deep rooted culture and psychological factors that require fundamental changes in thinking and have inter-generational implications. The fight against corruption to achieving a less cash economy would need to be addressed in the context of these three segments. In the second category would be those initiatives which require technological support, equipment and programming as well as cooperation from respective institutes of chartered accountants and cost accountants as well as practising legal experts on taxation. Finally, to change the deep rooted cultural and psychological factors, support of social, educational, and religious leaders would be required to effectively eradicate the menace of corruption.

It is clear that PM Modi is fighting the battle diligently as the route charted from demonetisation to Digi-Dhan strategy reveals. Now that the governments initiative in last six months has led to emergence of an army of citizens against corruption, need is to look for a courageous overall plan with a road map and benchmarks on a timeline.
The war against the malaise of corruption has to go beyond series of surgical strikes and needs precise planning with scenario analysis, and flawless execution. The government may consider strengthening efforts to eradicate corruption from exclusively tax-oriented approach to a broad-based approach. Hence, the PM’s offensive on financial corruption should be strengthened to be multi-pronged approach, to include all forms of corrupt practices. The giving up of lal battis and such VIP practices by the government is a step in right direction, which strengthens the fabric of equitable society and discourages malpractices.

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    Ayanendu Sanyal
    May 10, 2017 at 3:16 pm
    If the society is entirely immoral and corrupt then there is no incentive to remain clean noted a famous economist Bardhan. The issue of corruption cant be dealt through demonetisation and digidhan. The only thing that happens is a trail of money remains which helps in investigation of corruption. But being corrupt is a moral issue and it prevails if and only if all people behaves honestly which is an utopian concept. The concept of transaction through bank account can put a high disincentive to get corrupt as there is a money trail. But again if there is enough incentive so that one can overcome this disincentive then he will get corrupt.To make people honest it is required that the government should provide quality infrastructure education health. It has already been found that students who have read in public schools are more tax compliant than students of private school. Lastly, effect of demonetisation (rather i would call it remonetisation) are yet to be known.
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      VK Sharma
      Apr 28, 2017 at 11:26 am
      The Economics of Digital versus Cash Payment The cost of printing 90 billion notes in circulation valued at ₹ 18 trillion as on 8 November 2016 @ ₹1.6 per piece comes to about ₹ 14400 crores . This is entirely borne by RBI/Government. Now the Money Velocity of cash is about 7.8 which means cash transaction of ₹100 generates GDP of ₹780 which means currency in circulation of ₹18 trillion will generate about ₹140 trillion of GDP all for a cost of ₹14400 crores , borne by RBI/Government ! Now consider digital transactions . Merchants pay and recover from their customers an average 2 on digital payments . Therefore , if India were to become entirely cashless , the cost to customers will be about 0.02 18 7.8 trillion ₹ 2.81 trillion which is 19.5 times the cost of printing bank notes ! But, as said before , this cost of printing bank notes is borne by the RBI/Government and not customers ! So much as digital payments are highly desirable , the charge to merchants/ customers should
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      1. M
        Madhurima Das
        Apr 28, 2017 at 10:04 am
        Though Mr.modi is stepping up the ladder of the political game through his continuous fight against the corruptive practices but the fact of major macroeconomic bottlenecks like morbidity, health care facilities and very important factor of education has been ignored for past one year. Any idea of digitized India should also include a minimum educational facility for every child. And moreover the immediate effects of digitization should be considered where it is fundamentally unethical for rural people and people with age above 60. Yes it is good for long term goals but by the time we reach that stage it is extremely important to cooperate with short term shocks.
        Reply
        1. Kuldeep Yadav
          Apr 28, 2017 at 8:56 am
          Very Insightful article, Sir. I have one concern. GOI has incurred a cost of Rs 340 crore for the scheme. I personally feel that as a citizen of India I would not feel motivated to do a digital transaction even if there is chance of me winning a lucky draw. Instead of this cash reward, government could have issued certificates of appreciation to the citizens as they have done in the case of Income Tax Return. People would have flaunted these certificates which would have motivated other citizens to move cashless economy.
          Reply
          1. Govinda Warrier
            Apr 27, 2017 at 6:10 pm
            Corruption is not just about tax evasion, bribes or election funding from undisclosed sources. There are several other corrupt practices on which the rich and the powerful are dependent for their growth and survival. Fortunately, this decade has seen several initiatives including the India Against Corruption movement and bringing clean people to lead goverments. That individuals like Parrikar, Sreedharan, Raghuram Rajan and Vinod Rai could get audience and influence opinion in itself points to a change of direction for the better in the country's mindset. Still, there may be groups in political parties and in industrial groups which may give a last fight to continue corrupt practices to earn extra bucks about which goverments and people need to remain vigilant. The silver lining is the awareness among the youth about the need for eradicating corruption.
            Reply
            1. S
              S.Kumar
              Apr 28, 2017 at 10:59 am
              I agree with GW's observations that Corruption is not just about tax evasion, bribes or election funding from undisclosed sources as it has grown beyond any human imagination and also strongly strengthened itself in various other manifestations much to the discomfiture of a few honest people across the country. The Corruption signifies payment of the 'services' charges for blatantly carrying on something which is illegal and unjustified too. But who cares? Mind you, Corruption in India can never be abolished as it enjoys the blessings of the all that matters.
              Reply
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