This was much needed since it put a stop to the

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This was much needed, since it put a stop to the “extend and pretend” culture around worsening credit. The fifth reason for worsening NPA is an omnibus called “malfeasance”. This includes cosy relationships between banker and borrower, crony capitalism, political interference in lending decisions (a legacy of the past), a less than vigorous attempt to recover past dues, careless due diligence, etc. 9. Has demonetisation proved to be an effective policy tool to attack the black economy and control corruption? Discuss in the light of insights given by RBI before and after the note- ban. The RBI officials made two points before demonitsation. One, the central bank’s recommendation to the government was that demonetisation would prove to be a weak weapon in the war on black money, and that superior policy alternatives were available for achieving the objective. Second, the government pressed ahead with demonetisation, overruling this expert advice. The results from its counting of the returned notes show that the RBI did have a point. With 99% of the demonetised ° ° 500 and 1,000 notes back in the banking system, little of the stock of the black money in the country was evidently extinguished. Which means it was successfully converted into other forms, thereby delaying, if not altogether escaping, detection. The amounts under investigation so far, however, constitute a drop in the ocean. Yes, demonetisation delivered leads, but establishing criminal evasion and ensuring that the corrupt are punished is a monumental effort. Plus, the tax department’s past record of proving evasion is unlikely to be giving offenders nightmares. The faulty system is skewed in their favour. Procedures are time-consuming; there are limitations of administrative and judicial capacity, handicaps the government seems to be grossly underestimating. It could well be years before any serious large-scale clean-up is accomplished, representing at best a promise of a deferred payback from demonetisation.
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9 | Page 9004418746 [email protected] Although the chief goal of demonetisation was to place a check on black money, the central theme of the Prime Minister’s policy agenda, the government has no official estimate of the size of the black economy. Unofficial estimates range from a third of the white economy to as much as the country’s GDP. Without an official estimate, it is impossible to meaningfully evaluate by how much demonetisation successfully down-sized the black economy, if at all. Further there’s no evidence if the amount of bribery has reduced since demonitsation. 10. Demonitisation was much more than just a raid on black money, It had multidimensional positive aspects. Discuss.
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