The recently announced scrapping of 500 and 1000 notes denomination currency is expected to end the circulation of unaccounted wealth inside the country.It is aimed at curbing the flow of black money in the economy by turning the ill-gained cash of corrupt officials and/or tax evaders into nothing but paper.
However ,cash is only one form in which black wealth is held. It can be held in gold , real estate,antiquities etc. Demonetisation only target that part of existing black wealth which is held in cash whereas the objective must be to cleanse the system of corruption.tax evasions and the generation of black income.
What are the steps that will discourage fresh black income from being generated in future.Some steps which can be taken are :
*Increasing transparency and accountability where huge financial amounts are involved.
*Lowering tax rate and simplifying tax system to improve compliance eg.GST,direct tax code
*Reducing stamp duty for real estate sales.
*Introducing reforms in electoral funding,including transparency in party finances.
*Pursuing high profile corruption cases to send a message that corruption cannot be tolerated.
*Reducing discretion without safeguards in both central and state governments.
At the same time it must be kept in mind that demonetization is only one in a series of steps such as income declaration scheme, the benami transaction (prohibition) bill on black moneyetc. To be truly effective it needs to be followed up by some more such reforms to tackle corruption and generation of black income.
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