Sunday, September 25, 2011

Review on Arthakranti

I have been studying the issue of Black Money for the past few months and have gained basic knowledge on its key features. In some of my previous blogs I have described what it is and how it is generated. However, I have not presented any solution to this issue.

In the past few weeks I came to know about an interesting topic known as Arthakranti. The word by itself means - "Financial Revolution". I got this topic from one of the televised meeting of Baba Ramdev where Mr. Anil Bokil presented his 5-point formula for Arthakranti and how it can change the economic dynamics of India. The presentation was very simple. It used general terms understandable by common people who do not have much knowledge of economics. I was quite impressed by the overall aspect of Arthakranti. This concept was entirely generated out of the need to counter the issue of Black Money. Being a PhD student, I thought why not to study each and every point of Arthakranti and try to interpret what it means.

The five main aspects of Arthkranti as reported in the website are :-

   1. Withdrawal of existing Taxation System completely (except customs i.e. import duties).

   2. Every Transaction routed through a bank will attract certain deduction in appropriate percentage as Transaction Tax i.e. Single point tax deducted at source. (say 2 %).
         a. This deduction is to be effected on receiving/credit accounts only.
         b. This deducted amount will be credited to different Government levels like Central, State and Local (say 0.7%, 0.6%, 0.35% respectively).
         c. Transacting Bank will also have its share in this amount as the bank has a key role to perform (say 0.35%).

   3. Withdrawal of High denomination currency (say above Rs. 50).

   4. Cash transactions will not attract any transaction tax.

   5. Government should make legal provisions to restrict cash transactions up to a certain limit (say Rs. 2000).

If I understood the proposal of Arthakranti, I would say that the entire implementation is directed towards making the money flow accountable. Any money that is accounted is white. In the current economic system of India, heavy taxation puts an immense burden on the people, thus encouraging them to adopt methods that do not attract accountability. 

In the above proposal, accountability is ensured by enforcing all the transaction through banks. The liquidity in form of cash transaction is limited by first abolishing high denomination currency notes and then limited cash transaction above Rs 2000 illegal. A transaction tax of 2% is nominal and direct way to collect money for the tax. Abolishing all the existing taxes paves the way for a direct 2 % nominal transaction tax. Thus, the above five points are like 5 fingers of the hand. The proposals of Arthakranti will have no meaning if any one of the point is either rejected or modified. They have to be implemented together. 

The changes in the financial system as suggested by Arthakranti are gigantic. It needs immense willpower and determination to take such a step. No country has ever done anything remote as suggested by Arthakranti. Till date, this discussion is highly restricted to few people who are promoting this concept. However, Baba Ramdev has taken up the suggestions of Arthakranti in his Bharat Swabhimaan Yatra 2. He is now organising huge meetings and is discussing the essential facts of Arthakranti among the common masses.

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