Demonetization & Modi Effect on Compliance


Posted by on December 6, 2016

On November 8th 2016 at 8 in the evening PM Modi made an announcement that has potential to change the way the country operates. Jury is still out whether the Demonetization has reaped the benefits that were promised. One of the things are clear that this Government is willing to disrupt the status quo and explore the territories that no government in recent times has dared. Every government has given lip service on Black money but showed no real intent on doing anything about it. The reasons vary from vested interests within the government, complexity of the problem, risk of losing elections, fear of backlash & massiveness of the scale of the problem. In spite of these challenges, the government went ahead with the move. The announcement was sudden & people had no time to plan as the implementation was immediate. The penalty was high and impact was significant. Opposition was united and ready to exploit and magnify the teething trouble. There were questionable quirks in the implementation which was further dissected by the irked opposition.

The possible outcome of this step is either the move will be successful and effective or a total disaster. Either way, the government seems to be determined to keep the momentum going is talking about further regulations to stop black money. We can expect a crackdown on sources of black money including corruption. With many services linked to Adhaar the likelihood and magnitude of corruption is expected to dip. Another major area left unaddressed is the corruption in various government departments. As part of the measures to curb corruption in government departments, compliance streamlining will get a major attention. This can easily be at the scale of the crackdown we have experienced recently.

Streamlining the compliance will make it easier to do business in India, further push the Digital India, Make in India and Start up India initiatives of the Government. The impact on the companies can be huge as most companies have been lax when it comes to complying with the labour laws. Compliance to Taxation laws is much higher as the systems are streamlined and possibility of getting caught is much higher. In Labour laws the situation is different and hence companies have been able to do away without being fully compliant. This will however change soon. Going by the way the government is identifying and closing the loopholes that breeds corruption, labour reforms & streamlining of compliance to root out corruption due to Inspector Raj is not too far. It will be wiser to stay informed and compliant as any crackdown on non-compliance will see companies frantically trying to counter the threat. The right time is now when the threat is low and manageable to find a suitable compliance partner and get your compliance in order. Ask those who have been running now pillar to post to get their cash converted, they wish they had done something about it earlier. The right time for compliance is now and not later. It is simpler and more affordable now than it will be during crackdown.

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