The Preparatory Phase
A comprehensive study will need to be carried out to understand the
effects of the proposal on the micro level, on all segments of Society
and the Economy. Only the Government has the wherewithal and the
resources necessary for conducting such an exercise.
Banks will have to invest in technology for efficient management and
infrastructure for deeper penetration into areas of low presence. This
will be a long-term process and Banks will have to plan their strategies
accordingly.
The citizens will have to be informed about the new system over a
certain period through the use of every possible means and media. A
nationwide effort will have to be made using all existing administrative
network to issue unique P.A. Numbers / Social Security no. and cards to
each and every citizen.
The implementation phase
The system can be brought into force without any major change in the
constitution. It is truly benevolent and fair system, in line with the
basic socialistic philosophy of nation. System can implement in
following steps,
- Carefully planning in phased manner.
- Timeline for all phases
- Abolition of the existing Tax system.
- Abolition of the existing Tax system will be effective
from a single predetermined date. Simultaneously, the deducting of
Transaction Tax from all bank transactions will commence.
- No currency notes of denomination higher than Rs. 50/-.
- Currency notes of denomination higher than Rs. 50/- will
be phased out in a time - bound manner. All this money will attract the
standard deduction of Transaction Tax and the balance will be treated
as a legitimate wealth thereafter. Regulations governing Cash
transactions will also come into force.
- Anticipation of the magnitude and time of revenue generation.
- The magnitude and time of revenue generation by this
system needs to be anticipated. Initially there will be huge deposits of
cash of high denomination into banks, and there will be huge inflows of
revenue throughout the phase of currency compression.
- To handle and manage such huge transactions, banks will
need to widen their network, and upgrade their operating system
comparable to international standards
- Monitoring the effects of implementation steps
- The effects of these steps will need to be carefully
monitored and fine-tuning action will have to be taken as and where
required. Tools of monetary governance will have to be judiciously used
to control inflation.
- A strict watch on Government spending.
- Post implementation, a strict watch will have to be
maintained on Government spending. The highest degree of transparency
will have to be brought into all Government spending decisions
Round the clock, round the year continuous stream of revenue to the Government.
The day when currency compression is completed, and 50 rupees is the
highest denomination in force, all currency money can be assumed to have
come back into the system. Thereafter, all subsequent transactions will
yield transaction tax and the Government will receive revenue in a
continuous stream, round the clock, round the year.
Expectations from government
In the initial transition period, people are likely to move to cash
transactions rather than transactions through bank where the Transaction
Tax is going to be implemented. Therefore, in a given time frame, the
finance ministry / RBI must make provisions to remove the higher
denomination currency notes from circulation. Say, within a year, the
highest currency denomination should be Rs. 50.
With only low valued currency available for cash transactions, people
will have no choice but to go for transactions through banks, thus
helping boost the government revenue collection. All cash money in
higher denomination will have to be deposited in banks within this time
frame and will attract 2 % Transaction tax. Source of this money will
not be asked.
Government should make legal provisions to restrict cash transactions up
to a certain limit (say Rs. 2000/-). Recognizing cash transactions only
up to this defined limit as legal transactions can serve the purpose.
And also, government should make strict/stern legal provisions against
dishonored bank transactions.
Expectations from banks
The role of banking system can be compared to the circulatory system
within the human body. Just like the blood vessels carry the essential
nutrients to all the parts of the human body, the banking system is
expected to supply the "money capital" to the all the individuals and
the institutions.
Role of Capital in the economy is like that of the blood in the human
body. As the blood carries the required nutrients to the individual
cell, capital promotes productivity in the economic system. Any disorder
in the circulatory system leads to disease in the entire body.
Similarly, a flawed capital creation and distribution system has an
equally debilitating effect on the economic system.
Banks will have a very special role to play. Since it has been proved
over a considerable time period that present Banking System is quite
reliable in view of its efficient operating standards, cultivated and
trained human resource, least corrupt status among financial.
For more details http://www.arthakranti.org
