Demonetisation, a key step in formalising economy: Jaitley

Posting a strong defence of demonetisation on its second anniversary today, Union Finance Minister Arun Jaitley said that the note ban had a huge impact in formalising the economy.

"As we complete two years of demonetisation today, it has been established that demonetisation, a key step in a chain of important decisions taken by the Government, had a huge impact in formalising the economy," Jaitley wrote in a blog.

"The Government first targeted the black money outside India. Asset holders were asked to bring it back on payment of penal tax, on failure to do so they are being prosecuted under the Black Money Act. All such details received have resulted in action against the violators," he added.

 

Jaitley underlined that confiscation of currency was not an objective of demonetisation but getting it into the formal economy and making the holders pay tax was the broader objective.

"An ill-informed criticism of the Demonetisation is that almost the entire cash money got deposited in the banks. Confiscation of currency was not an objective of Demonetisation. Getting it into the formal economy and making the holders pay tax was the broader objective. The system required to be shaken in order to make India move from cash to digital transactions. This would obviously have an impact on higher tax revenue and a higher tax base," he said.

The Finance Minister said that the impact of demonetisation has been felt on collection of personal income tax. "The impact of demonetisation has been felt on collection of personal income tax. Its collections were higher in Financial Year 2018-19 (till 31-10-2018) compared to the previous year by 20.2%. Even in the corporate tax the collections are 19.5% higher," he added.

Stating that demonetisation and implementation of the Goods and Services Tax (GST) curbed cash transactions in a big way, Jaitley informed: "With a visible increase in the digital transactions, formalisation of the economy has led to increase in the tax payer base from 6.4 million in the pre-GST regime to 12 million."

He underscored, "In May, 2014, when the present Government was elected the total number of the filers of income tax returns was 3.8 crore. In the first four years of this Government, it has increased to 6.86 crore. Despite an annual income tax relief of Rs. 97,000 crore given to the smaller tax payers and a Rs. 80,000 crore relief given to the GST assesses, tax collections have gone up. Rates of taxes, both direct and indirect have been reduced, but tax collections have gone up," he added.

Jaitley further said, "Government has used these resources for better infrastructure creation, social sector and rural India. How else could we visualise villages being connected by road, electricity in every home, 92% coverage for rural sanitation, a successful Awas Yojana, a cooking gas connection. It is the formalisation of the economy which has led to 13 crore entrepreneurs getting Mudra Loans. More formalisation, more revenue, more resources for the poor, better infrastructure, and a better quality of life for our citizens."

Earlier in the day, former prime minister Manmohan Singh however asserted that the demonetisation exercise which the Prime Minister Narendra Modi-led government undertook in 2016 was ill-fated and ill-thought.

Underlining that the havoc unleashed on the Indian economy and society due to demonetisation was evident to all stratas of people, he said in a statement: "Today marks the second anniversary of the ill-fated and ill-thought demonetisation exercise that the Narendra Modi government undertook in 2016. The havoc that it unleashed on the Indian economy and society is now evident to everyone. Notebandi impacted every single person, regardless of age, gender, religion, occupation or creed."

The former prime minister further emphasised that the scars and wounds of demonetisation are only getting more visible with time. Singh added that the consequences of 'notebandi' are still unraveling.

Singh said that small and medium businesses that are the cornerstone of India's economy are yet to recover from the demonetisation shock, adding that the note ban has had a direct impact on employment as the economy continues to struggle to create enough new jobs for the youth.

Singh urged the central government to restore certainty and visibility in economic policies.

The Congress party is expected to observe a 'black day' today to mark the second anniversary of demonetisation, according to sources. Last year, too, the Congress and other opposition parties protested at various places across the country against the central government's drive.

On November 8, 2016, the Centre had declared Rs 500 and Rs 1,000 notes as non-legal and introduced new Rs 500 and Rs 2,000 notes. Since then, various opposition leaders have highly criticised the Centre's move, while the members of the Bharatiya Janata Party (BJP) and its allies have backed the decision.