Thursday, March 10, 2022


Read the following passage carefully and answer the questions that follow:

A demonetization that delegitimizes a certain currency, or even certain denominations of it, would extinguish wealth held in that form. What we have seen, however, is a less extreme case. In this one, holders of Rs.500 or Rs.1000 notes can exchange them or pay these into their bank accounts. This does not extinguish wealth as much as it will bring the hoards into the taxman’s radar when their owners draw upon them to make payments. For, as these will be bank transactions there would be a record of them. So, existing black money cannot be used to generate more of the same. To this extent the scheme cannot be faulted. Of course, it cannot be assumed that what is in a bank will necessarily be declared to the income tax authorities, but it will certainly come under scrutiny in a way that it was not when stashed under the mattress 

What are some reasons why we may welcome such a move? First, the concealment of income with a view to avoid tax is a crime. So, in a constitutional democracy such as ours those who avoid tax deserve to be punished. Second, in order to evade the law, those with unaccounted wealth proceed to corrupt others, most importantly representatives of the state. This criminalizes the system further. If democracy is a way of actualizing the public will, such criminalization of the machinery of government works against the ideal. So, the practice of tax evasion needs to be rooted. To that extent this move of the government may be welcomed.

But how significant is it likely to be in the punishment it metes out to tax evaders and in its ability to control the generation of unaccounted wealth in the future? The quantitative significance of this move depends upon the extent to which unaccounted, or ‘black’, wealth is held in the form of high-value currency notes of the specified denomination. If unaccounted money by Indians is held in the form of foreign bank accounts, the present scheme can do nothing about it. This speculation would suggest that if unaccounted money is not held as Rs.500 or Rs.1000 notes, the move is pretty much useless. There is, however, the separate issue of counterfeit currency. If there is a significant volume of counterfeit currency circulating in the form of Rs.500 or Rs.1000 notes, the demonetization will also extinguish unaccounted money from this source. If counterfeit currency is actually used to de-stabilize the Indian Union, as has been claimed, deflating this route enhances its security. This would count as another reason to welcome the move.
Dr Mukesh Pareek
English for all competitive Exams
Expert in English

Now to the question of whether the demonetization will eliminate the black economy of the future. It should be obvious that it cannot by itself. For this we would need a policy that checks the generation of black incomes at source. It would be a good surmise that much of the unaccounted money is generated in the purchase and sale of gold and of property. The markets for gold and property are highly concentrated, with relatively few sellers exerting considerable control over supply. Monopoly power combined with the cultural significance of both a home and gold ornaments in India empowers these sellers to insist that they are paid in cash, leaving many ordinary people in this country to have to abet criminal activity. However, the very fact of property firms, lesser builders and jewelers being highly visible and small in number makes it that much easier for the long arm of the law to control them. For this to take place though, action by the tax authorities alone will not suffice. It would require the Central government to step in and legislate that all transactions in gold and property go through banks. There could be hue and cry following this of course, but you can’t govern crime by being sensitive to the grief of criminals.

1.. Which of the following is one of the main objectives of demonetization of Rs. 500 and Rs.1000 notes?

a)      To stop the circulation of money in the economy.

b)      To identify the population living below poverty line.

c)      To bring the hoarders of money into the taxman’s radar.

d)      To increase the inflation in the economy.

2.The author of the passage is referring to what with the phrase ‘stashed under the mattress’:

a)      Plastic money

b)      Black money

c)      White money

d)      Liquid money

3.Which of the following is incorrect regarding demonetization in India?

a)      It will help in identifying the tax invaders holding the black money.

b)      Unaccounted wealth will be scrutinized.

c)      Black money will be redistributed in the economy in various forms.

d)      Income tax authorities will not be authorized to look into the bank account details of the hoarder of black money
4.According to the author of the passage, the demonetization move is only helpful when:

a)      Black money is kept in the bank accounts outside India.

b)      Black money is kept in the form of gold.

c)      Black money is kept in the form of high-value currency notes of the specified denomination.

d)      Black money is kept in the demat accounts.

5.Other than the issue of black money, which of the following issue is being addressed by the demonetization step?

a)      Increase in the population in India.

b)      Increase in the circulation of counterfeit currency in India.

c)      Increase in the unemployment in India.

d)      Increase in the demand and supply of currency in India.


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