A Pune-based think-tank named ArthaKranti claims that it had made the proposal of abolishing the currency notes of larger denomination to Prime Minister Narendra Modi before he assumed office. And there were four other proposals along with those. But before getting into the nitty-gritty of one of those, you might wish to revisit ArthaKranti's high-denomination note ban idea.

The think-tank's proposals, defined as “well-researched scientific approaches designed to completely transform the current Indian socio-economic scenario" also include ideas like scrapping all 56 taxes including income tax and putting in a new tax system — bank transaction tax or BTT — in place that will ensure every transaction routed through banks which will attract certain deduction in appropriate percentage transaction.

ArthaKranti defines its proposals as “effective and guaranteed solutions to black money generation, price rise and inflation, corruption, fiscal deficit, unemployment, ransom” and other such issues. These proposals include:

1) Scrapping all 56 taxes including income tax excluding import duty.

2) Recalling and scrapping high-denomination currencies of Rs 1,000, 500 and 100.

3) Ensuring that all high-value transactions are made only through banking systems like cheque, DD, online and electronic.

4) Fixing the limit of cash transaction and stopping taxing on cash transactions.

5) For government revenue collection, introducing a single-point tax system through the banking system – banking transaction tax (two percent to 0.7 percent) only on the credit amount.

When asked about the basic idea behind their five proposals Amod Phalke, a mechanical engineer put forward elaborate arguments. He stated, “In the Indian economy, cash transactions far outweigh transactions through the banking system — as much of 80 percent of the economy is cash-based, leading to an unhealthy development of the banking system — the backbone of any modern day economy. Alarmingly enough, with every passing year, this percentage of cash transactions is growing, rather than shrinking! The natural effect is a scarcity of credit supply for one and all”.

He added, “The 'have-nots' remain outside the banking system and never get a chance to establish their credibility. This keeps them at the mercy of the 'cash economy/parallel economy'. The political system — due to the lack of government funding (white money funding) — is at the mercy of the parallel economy and black money. This inevitably leads to increased criminalisation and corruption in politics.”

Phalke highlighted the disparity between India and some other world economies as regards to ratio of “per capita income to highest denomination” and “irrational distribution of irrationally high denomination” and stressed that "proportion of highest denominations in total currency money and their cost of printing explain common occurrence of fake currency in abundance". He added that the abolition of higher denomination notes was need of the hour.

Explaining ArthaKranti's next big proposal of abolishing all existing taxes and introducing banking transaction tax, Phalke added, “Every transaction routed through a bank will attract a certain deduction in appropriate percentage (say two percent) as a Bank Transaction Tax [BTT].” According to ArthaKranti, BTT should work this way:

  • A single-point tax deducted at source
  • A deduction to be effected on receiving/credit account only
  • A deducted amount to be credited to different government levels like Central, state and local (for example, 0.7 percent, 0.6 percent and 0.35 percent respectively)
  • The transacting bank to also get a share (say 0.35 percent) as the banks performs a key role

Arguing for other proposals of their organisation Phalke said, “As per the 2015-16 Budgetary Estimates, the combined total tax revenue of the Central and all state governments was Rs 20,00,000 crore." Considering the total tax revenue of all local governments (like municipal corporations) to be Rs 90,000 crore, the combined total tax revenue of the Central, state and local governments is as follows:

Rs 20,00,000 crore + Rs 90,000 crore = ~Rs. 21,00,000 crore

According to ‘Payment System Indicators’ available on the RBI website, average monthly bank transaction volume is Rs 1,20,00,000 crore taking into account currency denomination compression and a limit set for cash transactions to enjoy legal protection, a BTT Rate is required to generate the same tax, he said.

On the night of 8 November, Prime Minister Narendra Modi shocked the nation with the announcement that all notes of the denominations of Rs 500 and Rs 1,000 would not be legal tender after four hours. This sudden war on black money surprised and shocked the nation.

While the big issues on everybody's minds were the complications and inconveniences associated with turning in the new notes and managing without legal denominations (Rs 100, Rs 50, Rs 20, Rs 10 etc) in the interim, another thought was, and is, hanging in the air: Where did this idea for such unprecedented action come from?

It is possible that when a government of a country with an economy as large as India's takes a decision of such magnitude it might source ideas from multiple or even multitude entities, Firstpost has identified one organisation whose idea for cleansing India of black money matches the plan announced by the prime minister to a T.

The organisation's name is ArthaKranti. It is a Pune-based think-tank consisting of technocrats and chartered accountants whose mission is captured aptly in the name they picked for themselves: Financial/economic revolution (loose translation). ArthaKranti claims that it had made the proposal of abolishing the currency notes of larger denomination along with four other proposals to the prime minister even before he assumed office in 2014.

According to a newsletter published on its website on 9 September, "Anil Bokil, one of the key members of Arthakranti Sansthan was given time to share (their plan for wiping out black money —ed) to Modi. He was given nine minutes for sharing but Modi heard him for two hours". ArthaKranti says it made five proposals and defines them as "well-researched scientific approaches 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".

Talking about the vision behind the proposals and journey of the organisation, Amod Phalke, a mechanical engineer and one of the members of ArthaKranti said, "The five-point ArthaKranti Proposal came into being in 1999. It is worth noting that in 1999, Rs 1,000 notes did not exist. They came into circulation in 2001 and today account for 38 percent (by value) of all currency money."

He added, "The quest began around 1995. The trigger was some sensible and sensitive minds who saw some families around collapsing under burden of private money lenders who would charge rates starting at two percent per month. The quest began with some basic queries: Why is the government not printing the required amount of money? Why do so many people have no access to banks? What is currency money? What is bank money? What is the logic behind the government printing a certain amount of currency money? And in this quest, these minds could see the larger picture — involving the roles of — taxation system, high-denomination currency and underdeveloped banking system — which cover both monetary and fiscal aspects of the macro-economy. And this relentless pursuit led to the birth of the 'ArthaKranti Proposal' in 1999".

About their meeting with the prime minister, Phalke said, "We met Modiji in 2014 in Gandhinagar when he was Gujarat's chief minister. The meeting lasted for around 90 minutes. We highlighted how the root causes of the current economic reality lie in the technical flaws in the macro-economy — the taxation system, high-denomination currency and the underdeveloped banking system".

He added, "High denominations (Rs 500 and Rs 1,000 notes) accounting for around 85 percent of currency money are helping black money, corruption, and anti-social and anti-national activities. They also make money a 'commodity' in our country displacing it from its intended function — a 'medium of exchange'." A medium is one which everybody can use but nobody can possess.

However, thanks to high denominations, in our country we can easily hold large amount of cash thus making money a commodity. This blocks generation of credit money, also known as bank money. Also to be noted is the menace of fake currency — again a technical problem. The cost of printing high denominations is very low (Rs 4 per note), provides a huge premium for printing and injecting them into our economy."

He added, "And we see that Modiji has shown outstanding courage to take the first difficult step — withdrawal of high denominations. We look forward to the implementation of the remaining points of the ArthaKranti proposal soon!"

about-arthakrantiSo what are the other revolutionary proposals of ArthaKranti? While, as pointed out earlier, it is likely that ArthaKranti is just one of the many entities from which Modi sourced his big idea. But the fact that there are striking similarities between what ArthaKranti proposes and what the government has done, raises the next big question: What is the next big idea up ArthaKranti's sleeve and will the government travel down that road?

It all seemed utopian until yesterday. But when Prime Minister Narendra Modi made an announced demonetisation of the R500 and R1,000 notes on Tuesday, for volunteers at ArthaKranti Pratishthan it was a moment they were waiting for the last 16 years.

ArthaKranti founder Anil Bokil formed the ArthaKranti proposal which called for withdrawal of high denomination currency and the existing taxation system except for customs and import duties, routing all transactions through a bank and levying a bank transaction tax (2%) which is then credited to central, state and local governments with transacting banks also having a share. It also proposed that the government make legal provisions for restricting cash transactions up to a certain limit and not attracting any tax.

Mr. Bokil had made a presentation to Modi before he became the PM. According to Bokil, the PM was convinced and wanted to know how the proposal could be implemented and what should be the order of implementing these steps and sought feedback from his secretary Hasmukh Adhia on this. “We had no idea it was coming and were shocked like others,” said Bokil,

“He (the PM) is a man of action and execution and not just thoughts.” “If you see this move along with the Jan Dhan Yojana and the conversion of the country’s post office into a bank and the unified payment gateways system, you realize he is working to a plan and everything is in tune,” he adds.

However, Bokil said demonetisation needs to be accompanied by tax reforms. “We are going to pursue this to the desired logical end,” he Bokil as he hopes the country will move to bank transaction tax.

Nearly a decade ago, Pune-based organization Arthakranti, which has roots in Pune and Nagpur, was briefing PM Narendra Modi, then the chief minister of Gujarat, on a new economic model. "We had suggested to him that high denomination currency like notes should be withdrawn along with the introduction of other tax reforms," a member told TOI. Arthakranti's campaign peaked around the 2014 general elections. It had the support of the BJP which eventually came to power.

Arthakranti is run by a group of 17 trustees, including Atul Deshmukh, a chartered accountant residing in Nagpur. He toured the country extensively giving details of the Arthakranti model during the elections.

Deshmukh said Arthkranti had worked shoulder to shoulder with the Prime Minister's Office (PMO) in implementing the idea announced on Tuesday. "Direct meetings with the PMO lasted throughout 2015, the final session being in November last. After that the government continued to take inputs from us on a regular basis. The last time when a query came to us was a month ago. We had prepared an extensive data on black money and the disadvantages of cash economy," Deshmukh told TOI.

According to the organization, the legitimate economy stands at 18 lakh crore. But the black money is a whopping 84 lakh crore.

The members of Arthakranti came up with the idea in 1996. In 2003, it got registered as a trust. "Our plan was made public in 2007," says Deshmukh.

Arthakranti's proposal includes doing away with taxes and promoting plastic money. "The proposal is to replace all the taxes except customs duty and have banking transaction tax

(BTT) of 2% instead. Since cash is to be replaced with plastic money, all the transactions would be routed through banks. With a small tax on bank deals the government can end up getting a huge revenue," said Deshmukh.

It also called for having notes up to 50 for day-to-day dealings. "Finally one of our suggestions has been accepted. We hope the entire idea is implemented eventually," said Deshmukh.

Arthakranti says that it has no political links and had met leaders of all parties including Sonia Gandhi of the Congress. "There was great support from Nitin Gadkari, Subramaniam Swamy and Andhra Pradesh chief minister Chandrababu Naidu," said Deshmukh.

"We had placed our idea before the UPA leaders when the Congress was in power too," he added.

The Confederation of All India Traders (CAIT), which is led by city-based chartered accountant BC Bhartia, too claimed to have strongly lobbied for a cashless economy with the government. "Recently a meeting was held with the minister of commerce Nirmala Sitharaman for having a digital system of payment. We also had discussions with Niti Ayog CEO Amitabh Kant and also the finance ministry," said Bhartia.

ARTHAKRANTI'S PROPOSALS * Scrap all 56 taxes including income tax but not customs * Recall and scrap high denomination currencies

In a surprise announcement yesterday, Prime Minister Narendra Modi said that all ₹500 and ₹1,000 bank notes would be scrapped from midnight. The move is aimed at stamping out corruption and draining illicit cash from the economy.

If you thought that the PM came up with this idea overnight, you are wrong. While Modi is earning both bouquets and brickbats for his decision, it seems somebody else thought of this before him.

A group of crusaders who subscribe to the theory of "ArthaKranti", propounded by Aurangabad-based architect and chartered accountant Anil Bokil, preached the idea of scrapping ₹500 and ₹1,000 bank notes long back.

In July this year, Bokil met the prime minister to discuss his ideas of curbing black money. Reports suggest that while he was given only eight minutes, he ended up discussing his plans with Modi for over two hours.

Bokil is of the opinion that scrapping of high-denomination notes will solve the problem of black money.

"Unaccounted hidden huge cash is skyrocketing the prices of properties, land, houses, jewellery etc and hard earned money is loosing its value; this trend will stop immediately," he had said in a video, while presenting the theories of his group 'Arthakranti Sansthan'. Bokil also said that such a move will end the circulation of 'fake' currency.

Watch him speak here:

Bokil's proposals include other things too. He makes radical recommendations, including the withdrawal of the existing taxation system (barring import duties) and replacing it with a single-point transaction tax, to be deducted at source, and restricting cash transactions to Rs 2,000, which would not attract any tax.

The ArthaKranti team has been meeting several politicians and economists for a while now. In March 2007, Pratibha Patil, who was then the governor of Rajasthan, wrote to the then Lok Sabha Speaker Somnath Chatterjee urging him to give the ArthaKranti team an opportunity to present their model before members of parliament. Since then, this team has been trying to influence politicians.