The national unity government’s maiden Budget has proposed to tax the people who withdraw their own money from the banks while measures are also being taken to confiscate the moneys lying in their accounts unless they operate their accounts from January 1, 2016.
The Budget 2016 proposed to charge 2 percent withdrawal charge for cash withdrawals between Rs.1 million and Rs.10 million and 3 percent for anything above.
That is, a person withdrawing Rs.1 million has no choice but to pay Rs.20,000 to the government.
While the proposal must have intended at creating a cashless society in the new government’s quest to build a digital economy and to retain moneys in the banks, the proposal is ill-thought-out as it directly penalizes a person for withdrawing his own money. These measures are far from a social market economic model advocated by the new government, which came into power promising good governance and a free society.
Another uncertainty is that whether this withdrawal charge is only applicable to cash withdrawals from the banks as the proposal is listed under ‘Commercial Banking’ in Budget 2016.
The Budget also proposed to bar commercial banks from leasing activities and provide 100 percent government guarantee for deposits in finance companies.
Instead of an equitable market place, an inherent quality of a social market economy based on fair competition, actions such as these will create a non-level playing field between the banks and finance companies.
Besides, the government may want to be tad careful when milking the only cash cow it has in the economy – the banking sector.
“Who will want to deposit their moneys in banks when the finance companies offer higher rates with 100 percent government guarantee with no charge for their cash withdrawals?” asked a banking sector analyst requesting anonymity.
The banking sector, specially the Licensed Commercial Banks (LCBs), are slapped with a slew of hostile proposals from the Budget at a time when the sector is just emerging out of the pawning debacle in 2013 and 2014, which eroded billions of rupees from their bottom lines.
The banning of the leasing business has risked thousands of jobs in the banking sector and the social ramifications arising out of these policies could well add on to the burden of the cash-strapped government.
Meanwhile, the proposal to confiscate the moneys lying in the non-operative, inactive accounts in banks from January 1, 2016, too can be considered a day light robbery to fill the government coffers.
“At the same time, I propose that the monies lying in dormant accounts of commercial banks to be remitted to the Consolidated Fund, by January 1, 2016,” Budget 2016 read.
The consequences of these proposals are severe as these might lead to flight of deposits from the banks to finance companies and some people may never want to keep their moneys in the banks or the finance companies.
The question that is being raised by various quarters is whether the government, which announced “third generation of economic reforms”, is treading backwards many generations to an era where money was saved in tills, under pillows or ‘pettagamas’.