Above: LS candidate Nakul Nath with father Kamal Nath, who is contesting an assembly bypoll/Photo: Nakul Kamal Nath/Facebook

The IT department’s controversial crackdown on election eve in Madhya Pradesh is likely to open rounds of criminal cases in the state which otherwise is largely free of revenge politics

By Rakesh Dixit in Bhopal

A good 11 hours before an official press release mentioned Rs 281 crore as the amount involved in the income tax (IT) raids on Madhya Pradesh Chief Minister Kamal Nath’s two close aides and a nephew, BJP national General Secretary Kailash Vijayvargiya had already disclosed the figure in his rather colourful tweet.

His tweet at 10.53 am on April 9 read: “Madhya Pradesh mein tabaadla express patri sey utarney key karan durghatnagrasth. Jaan ka koi nuksaan nahi lekin 281 crore key maal key nuksaan ka anumaan (The Transfer Express in Madhya Pradesh has derailed. No loss of life, but loss of 281 crore estimated)”.

The same night, the Central Board of Direct Taxes (CBDT) issued a statement claiming it had detected “widespread and a well-organised racket of collection of unaccounted cash of about Rs 281 crore”, including transfer of Rs 20 crore to the “headquarters of a major political party in Delhi”.

The BJP leader’s stunning foreknowledge about the IT searches has raised suspicion in the Congress that the operation was orchestrated by the Modi government to defame the chief minister in the run-up to the Lok Sabha elections. Narender Saluja, media coordinator of the chief minister, said: “How could the BJP leader come to know of the figure in the morning? What kind of collusion is this?” He alleged that the searches were carried out at the instance of the BJP and were “aimed at maligning the image of the Congress during elections”.

Vijayvargiya’s controversial tweet is intriguing in view of the facts that neither the state office of the IT department nor the Madhya Pradesh police had any inkling of the searches that were carried out by 300 IT officials at about 52 locations in four states simultaneously on April 7, in a pre-dawn swoop.

The raiding teams from Delhi arrived in the state, along with around 150 CRPF personnel, on April 5, disguised as tourists. They hired five traveller buses and three SUVs. The local police was not informed before conducting the raids. The ostensible purpose of maintaining secrecy was to avoid a re-run of a West Bengal-like conflict in Madhya Pradesh with the local police.

In February, Kolkata Police and officials of the Central Bureau of Investigation (CBI) had a bitter face-off when the federal agency’s sleuths sought to grill the then police commissioner. Chief Minister Mamata Banerjee sat on a dharna after a team of CBI officials reached the residence of then Kolkata police commissioner Rajeev Kumar to question him in connection with the Saradha chit fund scam.

Nevertheless, skirmishes, though minor, did take place between the CRPF and MP police. In Bhopal and Indore, the jawans of the two forces came dangerously close to clashing, but timely intervention by the senior officers kept the situation from turning ugly. State Director General of Police (DGP) VK Singh has written a letter to Chief Secretary SR Mohanty, urging him to take up the matter of the CRPF jawans’ “intrusion” in the residential complexes without the state police’s permission. He has described the CRPF attitude as “non-cooperative and suspicious”.

After the dust over the IT raids has settled, questions are being asked as to whether the operation has succeeded in terrorising the chief minister and defaming the Congress? The Congress says the IT raids have only strengthened the party’s resolve to take on the BJP in the Lok Sabha elections with renewed vigour.

Party sources claim the IT sleuths have not seized any money from the residences and offices of people linked to the chief minister—former Officer on Special Duty Praveen Kakkar, former adviser Rajendra Miglani. Raids were also conducted on the premises of executives linked to the CM’s brother-in-law’s firm, Moser Baer, and his nephew, Ratul Puri’s company, Hindustan Power Projects Pvt Ltd.

Two others targeted in the operations were Pratik Joshi and Ashvin Sharma, both confidants of Kakkar.  Rs 14.6 crore in cash was reportedly seized from the residences of Sharma and Joshi. Sharma, a known power broker in Bhopal, was close to the BJP leaders. He had influenced the Shivraj Singh Chouhan government to generously fund his NGO. He was a middleman during the BJP regime and used to flaunt his proximity to several IAS and IPS officers. Son of a doctor, Sharma was a failed businessman till he came into contact with the BJP leaders, and gradually emerged as a top class fixer in the corridors of power. Joshi was his close associate. Their opulence and lavish lifestyle dazzled the IT sleuths when the raids were conducted.

The CBDT press release said the searches yielded unaccounted for cash of Rs 14.6 crore from the houses of Sharma and Joshi, besides 252 bottles of liquor, a few arms and a tiger hide. IT officials said that, apart from cash, some diaries, with names of IAS and IPS officers, had also been seized.

The chief minister claimed that the cash seized in the searches belonged to the BJP men and he had nothing to do with them.

The CM may have nothing to do with Sharma and Joshi, but his former OSD Praveen Kakkar was close to them.

After the Congress came to power four months ago, Sharma and Joshi aligned themselves with Kakkar. Kakkar was appointed OSD in December last year but resigned in March to assist the chief minister in the Lok Sabha elections. The former police officer had resigned in 2004 and joined then Union minister Kantilal Bhuria’s personal staff as OSD.  However, he enjoyed good connections with the BJP leaders too. His businesses, including mining, flourished during the Chouhan regime.

IT officials claimed that the raids followed credible information that money was being transferred through the hawala channel during the ongoing poll season. Searches against Miglani and Kakkar, the chief minister’s aides, were based on information of movement of cash, they claimed.

Miglani was in Chhindwara when his residences in New Delhi were searched. He is the election manager of the chief minister and his son Nakul Nath. While Kamal Nath is contesting the assembly byelection from Chhindwara, Nakul is the Congress candidate for the Lok Sabha seat which his father had represented for nearly 30 years continuously. Miglani is associated with Kamal Nath for as many years and is known as the senior Congress leader’s Man Friday.

The IT sources claimed to have recovered documents about bogus shell companies from Miglani’s residences. It is suspected that Rs 250 crore of black money was laundered through the hawala route.

However, Miglani said he was not aware of the raids. Kamal Nath said: “The BJP sees imminent defeat in the Lok Sabha polls and has resorted to such actions to get advantage in the elections. In the assembly elections held last year too they had adopted similar tactics.”

Madhya Pradesh Congress media in-charge Shobha Oza said: “The raids are an outcome of Prime Minister Narendra Modi’s frustration caused by the BJP’s defeat in three states (Madhya Pradesh, Chhattisgarh, and Rajasthan in 2018).”

The raids were conducted at Kakkar’s Indore bungalow, his office, a marriage venue owned by him and another flat. The raids in Bhopal were conducted at Kakkar’s official residence at Nadir Colony at Shyamala Hills, and at the residence of his associates, Ashvin Sharma at Platinum Plaza and Prateek Joshi at Shyamala Hills.

The chief minister’s nephew, Ratul Puri, was also covered under the search operations. He is under the scanner of the Enforcement Directorate for an alleged money laundering case related to the AgustaWestland VVIP chopper scam.

In an oblique reference to Puri, the CBDT statement said: “The searches in Delhi in the Group of a close relative of the senior functionary have led to seizure of ‘incriminating evidence’ including cash book recording unaccounted transactions of Rs 230 crore, siphoning off money through bogus billing of over Rs 242 crore and evidence of more than 80 companies in tax havens.” Also, several unaccounted/ benami properties at posh locations in Delhi have been detected, it claimed.

A statement issued by Puri’s company said: “Ratul Puri issues a categorical denial of having any connection or involvement of any kind in defence or the AgustaWestland case. He will be fully cooperating with the ED investigation and will provide any clarification or information as may be required.”

State BJP spokesperson Rajneesh Agrawal said: “By standing with Kakkar and Miglani, the Congress has proved that it’s for black money, not for any action against it. Congress’ previous records show it has always been with corruption.”

Officials said that MP’s Chief Electoral Officer (CEO) has conveyed to the Election Commission about the IT raids at the premises belonging to Miglani and Kakkar by a designated Income Tax Nodal Officer (ITNO).

Stung by the IT raids, the chief minister is said to have asked his close officials to prepare cases against the BJP leaders who are allegedly involved in various scams.

The controversial action in the midst of electioneering is likely to open rounds of criminal cases in Madhya Pradesh which is otherwise, by and large, void of revenge politics.

From fighting black money to leading the nation into a cashless era, the government’s demonetization drive has taken a sharp turn, plunging the nation into troubled times

By Ajith Pillai

From fighting the scourge of black money to heralding a brave new cashless digital era, the government’s demonetization drive has seen several sharp twists and turns. As many as 50 new announcements have punctuated the one month since the Rs 500 and Rs 1,000 currency notes ceased to be legal tender from November 9.

The rash of revisions and counter-revisions pertaining to the defunct currency and the terms of returning it is seen by many within the government as a manifestation of the abysmal lack of planning that went into the exercise. The aftershocks of India’s financial 9/11 continue to shake the nation as it enters the second month of disruption without a pause.

The confusion within the government was best explained to India Legal by a finance ministry official. “None of us knew anything about what was coming. We first heard of it on November 8 when the PM made the announcement. I don’t think even at the secretary level, people knew about it. The entire decision-making process was bypassed. One understands that demonetization was not discussed in the cabinet or at the Cabinet Committee on Economic Affairs (CCEA). We were simply shocked, although many of us wondered at the outset as to how demonetization could help fight black money. But we thought the entire plan must have been thought through. Now we know it was not.”

KEPT IN THE DARK

In fact, there is a buzz within the bureaucracy that perhaps even Union Finance Minister Arun Jaitley was kept in the dark till the very last minute. This speculation has gained a degree of legitimacy after West Bengal Finance Minister Amit Mitra revealed to TV host Karan Thapar in an interview on December 8 that a senior cabinet minister had told him how the entire cabinet was kept out of the loop.

Said Mitra: “I must confess that a Union cabinet minister said to me that they (the entire cabinet) were taken to a room and they thought the PM would speak to them. But that did not happen. Instead, they saw the Prime Minister on the TV screen making the announcement to the entire nation. They heard about it (demonetization) like all of us—at the very same time.”

When asked about the identity of the minister, Mitra said he was referring to a “very senior member of the cabinet” and that he had met him at a GST Council meeting in Delhi in the first week of December. The inference drawn by many was that the minister in question could be none other than Jaitley.

A day after Mitra’s disclosure, a Reuters report surfaced throwing light on the man behind the demonetization drive. He was identified as Union revenue secretary Hasmukh Adhia. A 1981 batch IAS officer, he was principal secretary to Narendra Modi from 2003-2006 when the latter was Gujarat chief minister. Adhia, a gold medalist from IIM-Bangalore and a PhD in Yoga from Swami Vivekanand Yoga University, Ban-galore, enjoys the trust of the prime minister.

Adhia took over as revenue secretary in September last year and officially reported to the finance minister. But for all practical purposes, he worked under the PM. He and five others, sworn to secrecy, and a team of researchers operated out of 7 Race Course Road. They comprised the team that planned the demonetization exercise and included data crunchers and those associated with Narendra Modi’s social media campaign in the 2014 general elections.

According to sources, the group zeroed in on demonetization for the following reasons: (a) it would root out black money by rendering undeclared income in high denomination notes invalid and unusable; (b) ensure liquidity in banks reeling under Non-Performing Assets amounting to over Rs 6.30 lakh crore; (c) it would derail the election plans of opposition parties and immobilize a big chunk of their funds in two key poll-bound states—UP and Punjab.

D-DAY ADVANCED

The original plan was to explode the “D-Bomb” on November 18, a Friday. It was felt that this would give a breather to banks to swing into action over the weekend. However, the date was advanced to November 8 because of fears that the news may be leaked to the media and would enable black money hoarders to convert their loot to white.

Much of the groundwork for the “surgical strike” was done by Adhia’s team. Data on time taken to print and distribute new notes was collated. Notes were prepared on the
after-effects of demonetization and how it would impact various sectors and how banks would benefit from a sudden inflow of funds. Everything was factored in except one crucial aspect—the overwhelming dependence of the ordinary citizen on the Rs 500 rupee in
day-to-day financial transactions.

A former bureaucrat in the know told India Legal: “The calculations were made rather haphazardly. I believe that if the plan had been discussed in the finance ministry, the glaring loopholes would have been pointed out. Similarly, had the CCEA been taken into confidence, it would have raised several objections and pointed out the pitfalls. But that did not happen. I understand that even the RBI was informed about the introduction of new notes but very few people in the central bank were aware of the enormity, suddenness and scale of the demonetization exercise.” 

In retrospect, the black money math was rather simplistic. It was initially assumed that of the Rs 15.44 lakh crore of high denomination notes in circulation, not more than Rs 8-9 lakh crore would be returned to the banks. The unreturned (about Rs 5 lakh crore) money would constitute the black component in circulation that could be declared neutralized. This is the money that the government hoped it could leverage for development work and to kick-start the economy.

NARRATIVE CHANGES

However, it became clear within a fortnight of demonetization that no significant amount of black money has been neutralized. It became evident by the volume of deposits in banks that much of the money in circulation would be returned. So the black money vanquished through demonetization would not be big enough to trumpet about and score political brownie points.

The narrative had to be changed. By November 20, the punchline was no longer a “war on black money”. It had changed to a “march towards a cashless economy”. The prime minister’s speeches suddenly became less focused on black money, although he continued to berate those who opposed notebandi as belonging to the corrupt class.

Meanwhile, a month into demonetization, only 30 percent of the money that had been declared illegal was replaced with legal tender by the RBI. The result: a severe cash crunch that hit practically every strata of society, more so the poor. Queues at banks and ATMs have shown no signs of shrinking and news that it would take at least six months for normalcy to return spread panic. People began to hoard acceptable currency at home and became austere in their spending—an unwelcome sign for a growing economy.

Even the IT raids on black money publicized in the media were due to established methods of detection and not thanks to demonetization. What’s worse, in many of the raids, the black money unearthed was in the new Rs 2,000 notes or its counterfeits. So the introduction of new currency did not deter fraudsters.

Frustration soon began to rear its head. V Ranganathan, a former IIM professor who initially backed the demonetization drive, had this to say: “I now feel like kicking myself. I was among the first to welcome the initiative on November 9. I thought the PM and his team had all the logistics worked out and the plan would roll out in an acceptable manner. Today I feel like an idiot. And the unfortunate part is the man on the ground thinks that the rich guy is getting screwed so it is worth paying for. The poor sucker does not know that it’s people like him from the lower strata who are getting screwed.”

Slowly but surely, the tide began to turn. A Huffington Post-Business World-C Voter survey on December 8 across India sho-wed that sentiment was swinging against the demonetization drive in both rural and urban India. While people were highly supportive of the government in the first two weeks, the continuing cash crunch and the prolonged disruption of their lives was testing their patience. However, they still were with the BJP given the disarray in the opposition.

ECONOMIC EMERGENCY

The paucity of cash in banks imposed a recession and an undeclared economic emergency in the country. The farming community is in dire distress with cooperative banks cashless and non-functional, several small-scale sector units have had to shut shop and the unorganized sector is in total disarray. Industrial production has plummeted and daily wage earners have no source of employment. There is chaos all around.

In fact, one question that looms large in many minds is this: If the objective of
demonetization was not fighting black money but to only transform India into a cashless and digital economy, then was it worth all this pain and suffering?

The government has not been forthcoming in providing answers. Instead, cabinet ministers and party spokespersons have been spreading Modi’s gospel of a cashless society across the country. Typically, Commerce Minister Nirmala Sitharaman described demonetization a digital detergent that would clean the economy. “This large, bold and historic initiative was taken by the Prime Minister keeping in mind the long-term economic future of India,” she said. Power minister Piyush Goyal described demonetization as “innovative disruption” while dismissing the criticism of two Nobel Laureates—Amartya Sen and Paul Krugman —as views of people who “either do not understand the Indian psyche” or are “seized by Modi-phobia”.

Professor Amartya Sen had described the government’s demonetization move as a “despotic action that has struck at the root of economy based on trust”. And Krugman pointed out that demonetization “seems like a highly disruptive way to deal with the problem of illicit hordes of cash, though it is not clear what significant long terms gains will come of it”.

HUGE TASK

So, what does one make of the march towards a cashless economy? Like the fight against black money, it too is a laudable objective. But a shift from cash to a digital economy cannot be achieved overnight. It will take a lot of doing for a 120-crore plus population to embrace a new system of transaction when close to 90 percent retail transactions are currently in cash. In fact, it could take several years even if the committee set up under Niti Ayog’s chief executive officer Amitabh Kant takes on the task of “making India a cashless economy on a war footing”.

The following factors point to the enormity of the task ahead:

• In the US which has been encouraging digital spending for decades, the cash component has only been increasing. A report in The New Yorker magazine in April quotes official figures and notes that in the last two decades, US currency in circulation has more than tripled to about $1.4 trillion, mostly in $100 bills. Given this, can India turn cashless overnight?
• The Indian spin that we are better poised to go digital since the number of internet users in India is higher than in the US is misleading. Figures quoted in the website Indiaspend note that with 34.2 crore internet users, we may have overtaken the US but this impressive figure only represents 27-28 percent of our population. This means that 73 percent Indians have no internet access. Also, of the total 34.2 crore net users in the country, only 13 percent are in rural India.
• India may have 102 crore mobile subscribers but only 17 percent adults have smart phones which can download apps. So the task of turning India digital is stupendous.
• Even the spread of banks is such that of the 1.38 lakh branches, only 47,000 are in rural India. The spread of ATMs is also skewed with 90 percent in 16 states and a sizeable number in urban centers.
• lA huge majority of the unlettered population do not trust banks and find it inconvenient to operate accounts. One estimate is that 80 percent of the population for all practical purposes are unbanked.
• The push towards a digital economy will increase cyber crime which India is not equipped to handle.

The digital push will, no doubt, boost the business of existing and newly formed (see box) electronic financial payment companies. Many of them have already begun reporting a huge spurt in business since demonetization and have begun to heavily advertise their services in the media. But could the drive towards a cashless economy have been achieved without the pain of notebandi?  Economic commentator and editor, TN Ninan puts it rather succinctly: “These objectives (establishing a digital economy and introducing tax reforms) could have been done independent of notebandi, which, at this stage, looks like a bad idea, badly executed on the basis of some half-baked notions.”

Lead picture: Waiting for hours in queues to get Rs 2,000, only to return empty-handed on many occasions, added to the frustration of people. Photo: Anil Shakya