Demonetisation of high-denomination currency notes will not help in tackling the black money menace, feel top government officials, as such funds are held in the form of 'benami' properties, bullion and jewellery.
The Central Board of Direct Taxes (CBDT), in a report to the finance ministry, has said that one of the major demands from the common public that it received was to demonetise notes of high-value denomination including Rs1,000 and Rs500. This, many of the respondents to a query by the CBDT felt, would help combat the menace of black money.
However, heads of various government agencies including the Directorate of Revenue Intelligence, the Enforcement Directorate and the Financial Intelligence Unit turned down the suggestion.
Besides increasing the cost, demonetisation may also have an adverse impact on the banking system, as handling and cash transportation may become difficult, says the report.
''Demonetisation undertaken twice in the past (1946 and 1978) miserably failed, with less than 15 per cent of high currency notes being exchanged, while more than 85 per cent of the currency notes never surfaced as the owners suspected penal action by the government agencies,'' pointed out the report.
High inflation and a sharp depreciation in the value of the rupee has made high-denomination notes such as Rs1,000 and Rs500 common among the masses today. And India being a largely cash-driven economy – with plastic money yet to become popular – demonetisation will prove to be an impractical solution to tackle black money, say analysts.
The CBDT in its report also pointed out that other demands from those sending their feedback included launching of a voluntary disclosure scheme and the introduction of a strong Lokpal bill. ''The public also wants the government to bring a strong Lokpal bill to monitor and punish political corruption, dismissal of public servants found to indulge in corruption, debar corrupt politicians from contesting elections,'' the report added.
Many of the respondents said the government should declare black money as a national asset. Others wanted illicit wealth to be confiscated and tougher punishments for the corrupt.