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Apologists for Prime Minister Modi’s Demonetisation policy are now claiming it led to a  big rise in direct tax revenues for Financial Year (FY) 2016-17. See, for instance this from Swarajya: 

Does this stack up?

The obvious logical flaw in this line of reasoning is the well-known ‘Post hoc ergo propter hoc’ fallacy. This is a Latin phrase that means, ‘After this, therefore because of  this’. The logical fallacy lies in the assumption that X caused Y because Y happened some time after X. It is possible that Y happened despite X, not necessarily because of X. Indeed if X had not happened then it is at least conceivable that something even better than Y might have resulted; we’ll never know. But without further analysis the conclusion is always suspect that X directly or indirectly caused Y.

How do we judge the claimed rise in 2016-17 tax revenues? Is it something we might have observed anyway? Regardless of what happened on Nov 8? Luckily for us the tax revenues in each year are part of a time-series data set published by the Government. The full report is here:

Table 1.1 of this report shows the tax revenues for each year since 2000-01. The first few rows of this table are shown here.


I have examined the trend in tax revenues by drawing trend charts. The following charts show the trend in direct tax revenues for Personal tax and for Corporate tax.

Tax Collection 2000-01 to 2016-17

Personal Income Tax

Corporation tax

These charts clearly show that the trend over nearly 2 decades has been one of  steady year-on-year growth in direct tax revenues.

This is of course to be expected. India’s GDP has grown over this period, economic activity has expanded, wages have risen and more people are tax payers - albeit the vast majority of people are too poor to be liable for income tax. In 2016-17 the total number of direct tax assessees (including companies, partnerships, trusts, individual, and 6 other categories) stood at 62.7 million in a country of 1,250 million people.

The key point is this: the growth in tax revenues in 2016-17 is just trend growth; it’s part of the pattern that we saw for the last decade. At least that much growth would almost certainly have happened even if the PM had not declared 86% of the currency to be no more than worthless scraps of paper.

Arguably it  might have been higher if demonetisation had not battered the economy as hard as in fact it did; we’ll never know. But to claim that the rise this past year is one of the benefits of demonetisation is to clutch at straws. It is a deliberate misuse of the official statistics; It is a cynical attempt to hoodwink the public into thinking that the sacrifices they willingly made in the months after Nov 2016 was worth it. The least the Government can do is not  insult their intelligence by claiming benefits on a fallacious and specious use of statistics.

 

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Was the demonetisation a success or failure? Various government claims and the subsequent lacklustre results leave no doubt that the demonetisation has resulted in no significant utility to the nation and caused considerable damage.

 

Demonetization
success or failure?

8th November 2016 - 86% of Indian currency was wiped overnight

The Claims

Minor inconvenience

Black money would be destroyed

Initial news of massive raids. Political opponents targeted. News of currency seized from various people. Widespread understanding among critics and supporters alike that the objective was to strangle cash flows (legal or otherwise) of political opponents during the upcoming election campaign in Uttar Pradesh.

ISI fake currency thwarted

Fake currency notes would lose value when the notes it copied were illegitimate

Widely criticized through various versions of "amputating a leg to lose weight" or "bombing a city to kill criminals in it", this was an irrational goal to begin with, to go through an exercise of this magnitude, expense and cost to economy to flush out a relatively minor number of notes that would at best lose value they didn't have to begin with.

Prevent counterfeiting

The new notes would have special security features to prevent counterfeiting

Initial reports in media suggested that the new notes would have special features that prevented counterfeiting them. At the very least, having to imitiate a new design would slow the counterfeiters down and reduce the amount of fake currency in circulation.

Various reports in a pliant news media even took claims of special GPS chips embedded in notes and discussed them seriously, creating a perception among the masses that the new notes would be extraordinarily resistant to misuse or imitation.

Tax Collection would increase

Almost 25% increase in tax collection has been unquestioningly gushed over by a pliant media. This increase in tax collection has been attributed to demonetisation.

The Reality

Massive disruption

Unclear how much black money was recovered

Having cash in itself is not illegal, unless it is established that the cash would not be accounted for while paying taxes. Seizing it without evidence of wrongdoing probably is, but the government legally created impunity for tax officials, who are no longer required to explain their actions to anyone..

Fake currency made legitimate!!!

The reckless demonetisation did not allow for examining notes

The relentless crowds and high stress environment at banks did not allow for adequate examination of notes deposited and the overall understanding is that a large number of fake notes got deposited and converted into real money in accounts or converted to new currency - in effect robbing the country far worse than them being in circulation.

Easier counterfeiting

The new notes had no special features that prevented counterfeiting

The new notes are of poor quality and apparently easier to counterfeit. Various leaders and affiliates of the ruling party have been caught with counterfeited notes and the equipment to make more. The trust in the notes is very low and "even the real notes look fake". Hurried printing has resulted in real notes not having all features they should have.

Among early news of counterfeiting included school children who had photocopied a Rs.2000 note and used it to dupe a sweets shop owner when they purchased treats using it.

There has been no change

Tax collection has been increasing year on year for a long time now, and if you look at the trend over the years, this year's increase in collection fits the curve.


The country would profit

Unreturned money would be money taken away from criminals

82% of the money demonetised was rapidly returned to the banks about a fortnight before the last date to deposit demonetised notes, and the crowds continued unabated way after the RBI stopped updating figures on money returned. It has been over 7 months now and they still have not given out the final figures related with demonetisation, .

RBI would transfer profits to the government

RBI transferred Rs 30,659 crore as surplus to govt. This is lower than the Rs 65,876 crore last year - less than even half the amount. The budget has assumed Rs 75,000 crore would come from RBI and PSBs.

Not just is the windfall absent, the government has not even been able to reach half the amount of the previous year.

The windfall from demonetisation would fund welfare

In addition to the losses made by the government, the citizens have made losses - from disruption and decimation of livelihoods to time taken off daily wage work and expenses.

There will be no benefit/compensation to them. Likely, a reduction of existing benefits will happen due to the lack of funds this "minor inconvenience" will cause.

Yep, demonetisation has been every bit of the clusterfuck it had been predicted to be, and we are not even close to recovering from the damage done.

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10th September, 2016, Cuttack: One is puzzled by the accounting treatment for Justice Indrajit Mahanty's Rs 2.5 crore working-capital loan for his hotel, The Triple C. Lakhs of rupees are withdrawn and repaid every month in two SBI loan accounts in the name of "Justice Indrajit Mahanty" and strangely, not in the name of Latest Generation Entertainment Pvt. Ltd., the company that has leased the hotel from him. As a High Court judge, Justice I. Mahanty gets a monthly salary of Rs. 1.35 lakhs, and therefore is liable to pay Income Tax. But repayment of principal plus interest could reduce or eliminate his taxable income. Suppose his tax returns are dodgy, can Income Tax authorities summon his lordship personally for questioning u/s 131 of Income Tax Act, and compel production of his lordship's books of account?

We asked Mr Binoy Gupta, a retired Chief Commissioner of Income Tax (CCA), who holds a Ph.D. in Law. His reply was: "There are no exemptions in any law for any Supreme Court or High Court Judges from any judicial or quasi judicial proceedings. Our department has taken action under the Income Tax Act against them."

We requested Mr Gupta for case studies (with or without the names of the judges) to substantiate his claim of having taken action against judges. His response was: "I can not give any instances today. But I stand by my statement that Judges of the Supreme Court and High Courts have no special status so far the applicability of Income Tax Laws are concerned."

And then Mr Gupta added that bringing a judge to justice is a tough job. He wrote: "If any govt. servant engages himself in business, his department can and does take action. But the procedure for taking action against Judges is far too complex... impeachment which is extremely difficult."

Given the absence of case studies and other details of judges being held accountable by Income Tax authorities, our gut feeling is: IT authorities will never dare to summon his lordship, because (a) they would be in awe of a high court judge, and (b) because the high court has superior jurisdiction over the Income Tax department, and not vice versa. Even if judges do not enjoy de jure immunity from quasi-judicial and administrative authorities, they enjoy de facto immunity. No government official will risk rubbing a high court judge the wrong way by questioning him, even if the law permits him to do so!

Justice Indrajit Mahanty may or may not have broken any laws, but he is definitely in breach of the code of ethics on multiple counts. Must we all act like Gandhi's three monkeys and remain silent?

In return for such unquestioned authority and immunity, judges are expected to keep their affairs transparent and straightforward, by abstaining from business activities. Their income should ideally consist of their salaries, and interest on fixed deposits etc. -- nothing more complicated than that. To quote YK Sabharwal, former Chief Justice of India, who spoke on the Judicial Canon of Ethics, "Almost every public servant is governed by certain basic Code of Conduct which includes expectation that he shall maintain absolute integrity... manage his financial affairs in such a manner that he is always free from indebtedness, and not involve himself in transactions relating to property with persons having official dealings with him." Please note that seeking building permissions, bank loans, hotel licenses, etc. etc. are all transactions with the government, administration and public sector, who all have "official dealings" with a high court judge in his judge-like capacity. Such transactions adulterate the purity of Justice Indrajit Mahanty's judgment.

According to the Restatement of Values of Judicial Life (adopted by Full Bench of Supreme Court on7th May, 1997), "A Judge should not engage directly or indirectly in trade or business, either by himself or in association with any other person. 

And according to the Bangalore Principles of Judicial Conduct, 2002, "A judge shall not only be free from inappropriate connections with, and influence by, the executive and legislative branches of government, but must also appear to a reasonable observer to be free therefrom."

Read all these documents on judicial ethics and in that context, understand the significance of Justice I Mahanty's actions. Justice Indrajit Mahanty may or may not have broken any laws, but he is definitely in breach of ethics on multiple counts.

So, must we all remain silent like Gandhiji's three monkeys? Must we all adopt a policy of See-no-evil, hear-no-evil, speak-no-evil when it comes to judges? Must the adulteration of our judicial services be allowed to continue under cover of a conspiracy of silence?

ISSUED IN PUBLIC INTEREST BY
Krishnaraj Rao
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Posted By 
Sulaiman Bhimani 
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sulaimanbhimani11@gmail.com