India has a large cash economy - arising primarily from illegal transactions and non-reporting of income for evading taxes
Cash economy is a curse for India, which breeds corruption, runs parallel economy, deprives the Government of its due share of taxes, leading to ever increasing gap between the haves and have nots, i.e. Skewed distribution of wealth
Methods such as cash payments, multiple bank accounts, and benami ownership are used to hide illegitimate income / expenditure / investment
How to minimise corruption, bridge the gap between the haves and have nots, enable Government to get its dues as also empower the Government to enable people to comply with laws
Practical Solution
All individuals / entities must disclose all their bank accounts in annual tax returns
No individual or any other bank account holder will be allowed to withdraw cash of more than Rs. 50,000 per month from a designated account which will be used for the purpose of cash withdrawal and cash deposit. This will force everyone to use one or more payment methods, which will be through banking channels, such as cheque, demand draft, RTGS, internet banking, credit cards, debit cards, electronic payments, e-commerce, m-commerce, etc.
Any amount of cash deposit will be welcome
This will ensure near zero availability of cash in anyone’s hand and force use of electronic means for payment, thereby allowing the Government authorities to track and trace payments and conclude whether payment has been made for legitimate means or otherwise.
How, Who and When to do?
RBI to issue a circular to this effect.
The circular can be issued any time.
This can be made applicable over a period of 6 months – starting from top 700 towns in the first month, in 3 months – towns 701 to 5000 and in 4 months – rest of India.
End Goal
Overnight reduction in the level of corruption through cash and empowering the governmental authorities to track, monitor, trace and check the compliance of various laws at any point of time even after 10-20 years since the records will be available
Overall prosperity and growth of people and increase in purchasing power in the hands of the needy people, propelling real demand which will lead to overall economic growth