For a nation that loves cricket, the demonetisation drive launched by Prime Minister Narendra Modi on November 8 to pull out 86% of the cash floating in India’s economy has been like a one-day match, with roughly 50 days to the core deadline set by the government to swap bad cash with good resembling the number of overs in a game full of twists and turns. As Modi gets ready to address the nation on December 31 in a stock-taking speech, sober watchers of the game may find no nail-biting finish or clear winner. We might need to use something resembling the Duckworth-Lewis method that cricket scorers use when rains or disruptions mar a match. We can expect the prime minister to announce on Saturday some populist handouts that would make the headlines on the New Year Day as he declares partial victory in a long-term war on black money that he will vow to carry on. But the real ammunition may be held back until the February 1 budget.
What is clear is that there is no fairy tale El Dorado of a huge pile of unambiguously wasted black cash as it was being made out soon after the government pulled the plug on old 500 and 1,000-rupee notes. There was talk of a fiscal bonanza for the government through a windfall dividend from the Reserve Bank of India then. The RBI has since virtually ruled out such a possibility. Of the Rs 15.4 lakh crore worth of scrapped currency, some Rs 14 lakh crore has been deposited in banks or exchanged already. Some more money may trickle in through the ambiguous Pradhan Mantri Garib Kalyan Deposit Scheme window over the next three months or in last minute deposits on Friday. Clearly, there is no winning shot in this match in sight. What we can expect next is a patient round of bean-counting in the Finance Ministry as taxmen zero in on high-value cash deposits. Some 60 lakh depositors have put in deposits totalling Rs 7 lakh crore since November 8 in instances exceeding Rs 2 lakh each. But toothcombing these and actually calling the bluff on tax evaders may take months or years and in cases involving big fish, involve appeals to income tax tribunals or even high courts. However, we can reasonably expect Finance Minister Arun Jaitley to announce a very comfortable fiscal deficit situation for the 2017/18 financial year when he rises to present the budget on February 1. This would be largely though anticipated income tax gains from the deposits made in banks. The minister is already setting the mood by pointing to robust growth in tax collections..
A low deficit will give the government enough elbow room to play shots – be it in the form of lower taxes for citizens, populist schemes, recapitalising banks scarred by bad loans or fresh spending on infrastructure. A Robin Hood-like transfer of a big chunk of fiscal gains to the poor holders of Jan Dhan Yojana may be the most romantic outcome of the demonetisation drive.