It was November 8^th 2016 and like many others I was frantically refreshing my twitter timeline to find out who would win the US Presidential elections. I have been closely following the US Presidential elections and this was a night I simply couldn't miss. It was almost as if watching India Vs Pakistan cricket match. The mystery was about to unfold and the world would get to know the next president of the United States of America.

But then something more spectacular was about to happen in India!

The Prime Minister (or rather the Pradhan Sevak, as he likes to call himself) of India had different plans! He had summoned an urgent meeting with the 3 Defense Chiefs of India which was followed by a Cabinet meeting. Almost everyone thought that Mr Modi had finally made up his mind to declare war on Pakistan. There were speculations that Modi would

 break this news to the media any time soon. But when Mr Modi finally addressed the nation he it became clear that he did declare the war but it was not against Pakistan alone. It was the mother of all big bang reforms. In a master stroke of sorts, Modi had carried out a surgical strike of epic proportions! Two high denomination currencies viz, 500 and 1000 had been declared as illegal tender!

This could very well be the most defining moment in the history of India's fight against black money and corruption. The level of secrecy maintained till the last minute truly shows the level of personal integrity and credibility Mr Modi truly embodies. He exhibited great level of maturity and sensitivity when making the announcement and ensured that no one gets the slightest of hint that this was coming. To that effect, I salute our prime minister!

Artha Kranti – A proposal that could rewrite the destiny of India

According to Artha Kranti Sansthan, they would like to define Artha Kranti as:

"The ArthaKranti proposal is a well-researched scientific approach designed to completely transform the current Indian socio-economic scenario. This approach will enable 'Principled, Prosperous and Peaceful living' for all citizens of our country.

This proposal is politically neutral, it is open for adoption by any political party at national level. On adoption, it can practically and concretely strengthen the people friendly agendas of political parties!"

Before I dwell into the details of the proposal from Artha Kranti Sansthan, I would like to give an over view of the current state of affairs. I will try to explain using an analogy to explain why do we even need an Artha Kranti so badly in this country!

Typically, in any economy money is to be treated as a 'medium' and not as a 'commodity'. When it's not the case, we end up in a situation like we have in India right now.

Let me explain this with an example. A cell phone is a commodity. It will continue to serve its purpose even if some government decides to make it illegal or outright ban it. So, if cell phone is banned in India, one can take it outside India and still continue to use it. But currency is not a commodity. It's a medium. If government decides to ban or demonetize it, it will be rendered useless. No matter where you take the money it will be worthless.

Unfortunately, in India, currency has long been treated as a commodity and not as a medium. So, it's not a surprise that people made every effort to keep it under their possession either by hook or crook. So, when currency in an economy ceases to be a medium, it can be equated to a situation where there is a blockage in a major artery in your body. What happens when a major artery is blocked? It needs to be operated and the blockage needs to be cleared. If it's not treated it will eventually cause a person to die of a heart attack.

In India, it was true that the money originated in the banks, but it didn’t return into the banking system. To make things worse, almost 80% of people who were supposed to be using cash for the daily transactions weren't even part of the banking system! In nutshell, there was no financial inclusion. To address this, government rolled out the Pradhan Mantri Jan Dhan Yogjana (PMJDY). Thanks to the relentless effort of banks, India has been steadily moving towards financial inclusion.  With the introduction of PMYJ scheme, the government aimed to bring as many people as they could to start using the banking system. This is also one of the most ambitious projects of government of India.

This move helped government to plug the leaks in the subsidy it used to roll out and put those benefits directly into the beneficiary's account. For the first time since independence the poor people in India got their benefits without the middle man taking his cut! This is a huge win for the government.

Why treating currency as medium is important?

It encourages people to accumulate it (just like body fat). Is there anything wrong in people accumulating cash you may ask? Well, it certainly is bad. For instance, let's say you have Rs 50,000 in cash and you keep it safely in your home and don't use it for 6 months or maybe a year. What could possibly go wrong by just keeping the money safely at home? For starters, the money could be stolen. It could also lose the opportunity to grow! Also, if the money were to be deposited at a bank, you could have earned some interest on the money! But that's just a side effect. What could have also happened was that the bank could have lent the money to someone else who is need of that money. If the money borrowed from the bank was invested in a business it could generate employment for others and make profits. So basically, by just bringing the money back into the banking system, you have not only created an opportunity for your money to grow but also made sure that someone else is in need of that money has access to it. That is the power of currency as a medium!

What’s wrong with the way we run our country's budget?

Another interesting observation we find in India is there are lots of parallels that can be drawn between the way the economy of the country and a traditional household is run.

In a family, typically the head of the family identifies the total source of income. With that as reference, a list of all the expenditures are identified. Then the expenditure is deducted from the income and it continues until all expenses are paid for. At this point 2 things happen, either the family has surplus or they have a deficit. If they have surplus, then it's not a big deal, they can choose to do whatever they wish to do with the surplus. If it's a deficit, the breadwinner begins to explore all the options in order to balance the budget.

So far everything seems to be very logical in our approach. In fact, one would expect the country also to be run the same way. But unfortunately, it's not. For some reason, the country's budget is not managed in the same way a family manages its budget! We first come up with the expenses and then try to figure out how to meet those expenses! Strange but true!!

Now back to the situation in the family. When faced with deficits, the breadwinner, in the average household, will typically tap into the savings the family had been saving for such rainy days. If nothing comes of it, the next thing would be cut down expenses like pocket money to children, any luxury expenses etc, until the budget is balanced. If all else fails, the family resorts to borrowing. What if borrowing also is not an option? What if the family decides to go down the unethical path? What if the family decides to loot a bank or get into other unethical activities?

Now the govt also goes through the same set of options but here it employs other techniques like internal debt. If that doesn’t workout, it even resorts to what can be considered unethical. All the while trying to balance the budget. Does this sound too hard to believe? Well not really.

Let me give you an example. I am sure all you would agree that drinking alcohol is injurious to health but you'll find that the government selling liquor to people. It's also known that gambling is considered still unethical by many in India. It has destroyed so many families but still you'd see government in the business of selling lottery tickets. All this in the name of generating revenues and balancing the budget.

Instead of identifying the leaks in the system and plugging them, the govt resorts to all sorts of way to fill its coffers. All of this happens along with the innumerable taxes levied on the common man.

The taxation in India has been historically designed in such a way that it goes after people who work hard and work on increasing their income, while incentivizing those who don't work hard or don't contribute enough to the economy. It's truly ironic that those who work harder to earn and maximize their wealth legally are also often the people who get "promoted" to a new tax bracket! So, if you are someone who doesn't like to work hard or wants to earn more, the government goes out of its way to incentivize you to remain that way!

How does Artha Kranthi help solve this problem?

It is obvious from the above arguments presented that the taxation in place currently in our country have failed to fill the coffers of the government. Due to leakages in the system, the tax collected at various points don't end up reaching the government. To fix this issue, Artha Kratni team has a totally different proposal.

Firstly, the myth that only 1% of the population pays the tax in India is completely untrue. Almost 99% of people in India pay their tax. It's just that the way this tax is collected by the government is very non-invasive in nature. It also accepts that not all those who have black money in India are criminals. The system in India was designed with such idealism that it almost made it impossible to remain honest and still make a living. In other words, there's no incentives to remain honest and pay your taxes!

Looking at all these problems, here's a list of proposals put forward by the Arta Kranthi Sansthan which according to them will help tackle the issues we have discussed so far. Also, it will help India move from a cash intensive economy to a cashless economy, all the while plugging the gaps in the taxation system. It's truly revolutionary in nature!

1. Withdrawal of existing taxation system completely.
2. Every transaction routed through a bank will attract a certain deduction in appropriate percentage as Transaction Tax I.e. single point of tax deducted at source. E.g. 2% of all banking transactions.
   1. This deduction is to be effected on receiving/credit accounts only.
   2. This deducted amount will be credited to different Government levels like Central, State and Local (say 0.7%, 0.6%, 0.35% respectively).
   3. Transacting Bank will also have its share in this amount as the bank has a key role to perform (say 0.35%).
3. Demonetization - Withdrawal of high denomination currency (already implemented with demonetization of 500 and 1000 Rs notes)
4. Cash transaction will not attract any transaction tax.
5. Government should make legal provisions to restrict cash transactions up to a certain limit. E.g. up to Rs 2000.

Of the 5 proposals listed, Mr Modi's government has dared to implement what was hardest to implement. It implemented demonetization. It has a high risk of failure if not implemented correctly since a huge percentage of cash in circulation is suddenly going to become invalid overnight. If the government fails to meet the cash demands with the right levels of inventory, chaos will soon ensue.

But going the way people have received this move, I am quite happy that the govt has been able to sell this reform to the people well.

The whole point of implementing the proposals of Artha Kranti is to bring in transparency into monetary transactions in India. Once we move towards a cashless economy, a lot of proposals will start to make sense.

A direct impact of moving towards a cashless economy is that banks will have more cash at their disposal and they will be able to disburse loans at a very competitive rate of interest. It will automatically boost various sectors of the economy like Real estate, start up India campaign will take off in a big way, etc.

As we slowly approach the 50 days’ deadline of 31^st December 2016, to deposit old denomination notes, we are already hearing the news about astounding levels of cash deposited in the banks. An estimated 4 Lakh crores is said to have been deposited into the bank accounts in just 5 days since the announcement of demonetization. This is not a trivial sum of money. It's almost 2-3 times the annual budget of Karnataka!

I sincerely hope the proposal put forward by Artha Kranti sansthan are reviewed and all the pros and cons are evaluated and finally implemented in the true spirit. I truly believe that if it's done it will help to rewrite the destiny of India for the good.

Pic Credit: By Agastya Chandrakant (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons