Prime Minister Narendra Modi has boldly taken strong steps of Demonetization for unearth undesired Black Money. Naturally, those who are effected chunk who are holding huge cash will attempt all their means to get rid of them.
We, CMA ; Cost and Management Accountant endorse our President and Vice President support of Our Institute of Cost Accountants of India ICAI-CMA supporting PM for his rightly directive action which will boost Indian economy and will provide additional means for all around development of all sectors especially large number of People / Families who are at the base of pyramid. We all knows ; India has two reverse pyramid of number of people / Families and Volume of income / Wealth. Few People / Families concentrating/enjoying with high Income / Wealth and Larger number of People / Families concentrating / suffering with Low Income / Wealth or Nil wealth
Let us view this Demonetization on Principles of Activity Analysis which remains the first tool to apply while attempting for managing Cost Benefits exercises / solutions.
Who are affected. Naturally, class of Sectors / families / people having huge unaccounted cash through their legitimate – non legitimates activities on which no tax or less tax either direct or indirect is honoured. To them up to now whatever continued huge multiple benefits for so many years they have earned by saving ; not making payment of taxes become cause to result its value as zero unless they through resolving unethical tactics got discounted at 10% to 30% or even more as 50% as last date 31st December approaches. How this is happening ? Influencing and wrongly convincing nearby needy or controlled people or hiring agents or professionals to deposit high denomination of Cash up to Rs 2.50 Lakhs in their multiple accounts. The benefits to actual person may be hardly 10% but to intermediaries it could in the range of 30% to 40% who could be few white colour professionals ; certainly not CMA like us.
Up to now it was such great cost to nation to the extent of opportunity of loss of GDP to X% of peak of such hoarded cash which remain unutilised and remained ideal unearth at various storage places all over India. As CMA, we improvise the units with restoring to optimum utilisation factors, So is with Demonetization due to which huge amount will flow in the Banking System to yield gainful positive economic results. Yes , it must have boost parallel if used for good economic causes.
We all Indians are proud with the effect of pushing out the illegitimate currency which were being wrongly employed against the country at boarder and few places with in country by our known enemies. Values to such remarkable result is not measurable it is immense and proud.
Now good values could come only when estimated numbers flows to Banking system. Why wrong doers will deposit when values to them is zero and they have to pay additional amount as penalty or otherwise. Instead they could throw away. So system requires few positive motivation which may be effective by passing …………….Bill where cost to person is approximate 50% plus loss of Income on 25% for 4 years which could amount to average 45% at 10 % Fix Deposit Rate ; which could be 10%. Hence Cost to person is 60%. Certainly benefits to nation is huge especially to large number of People / Families who are at the base of pyramid. The amount could be 12.50 % of estimated Black money if we presume 50% of amount will be offered under these scheme.
Even Now Greedy person may yet compare with scape goat methodology as suggested by few other professionals where cost could be 30% to 50%. In this method every known and influenced account holder who is made to understand that nothing would happen if one deposit Rs 2.5 Lakhs in one account here benefit to small person is 10% mere Rs 25,000 should be stopped especially by CMA like us and other professionals.
These Cost Benefit Analysis has many concept and logics and will be dealt with in continuation with many verticals in gradual phases
(This write up is joint efforts of Associate Partner CMA T K Jaganathan and Professional Associates under guidance and directives of Controlling Partner CMA Rohit J Vora)
good article