Finance Minister Arun Jaitley on Thursday staunchly defended the demonetisation drive, saying ‘prophets of doom’ have been proven wrong as hard data of two years shows an increase in tax base, greater formalisation of the economy and India retaining the fastest growing economy tag for the fifth year in a row.
On the second anniversary of the shock note ban, Jaitley wrote a Facebook blog ‘Impact of Demonetisation‘, listing an 80 per cent jump in income tax return filers to 6.86 crore, increase in digital transactions and more resources being available for poor and for building better infrastructure as the main achievements.
With depositing junked currency in banks only mode left to liquidate holding of old 500 and 1,000 rupee notes, the government was able to track down people holding cash beyond their known sources of income.
“The enormity of cash deposited and identified with the owner resulted in suspected 17.42 lakh account holders from whom the response has been received online through non-invasive method,” he wrote. Since the money came into bank accounts, the holders were forced to file income returns, which went up from 3.8 crore in May 2014 to 6.86 crore.
“By the time the first five years of this government are over, we will be close to doubling the assessee base,” he said.
Responding to criticism from opposition parties, Jaitley said India clocking the fastest growth rate has proved “prophets of doom”, who had predicted that demonetisation will shave off 2 per cent of growth rate, conclusively wrong.
Criticism from Opposition
Opposition parties led by Congress had launched a scathing attack on the government, with former Prime Minister Manmohan Singh terming demonetisation as an “ill-fated” and “ill-thought” exercise, whose “scars and wounds” are more visible on the second anniversary of the “economic misadventure”.
Congress chief Rahul Gandhi alleged today that the government’s move was a carefully planned “criminal financial scam” whose full truth is yet to be revealed. He also alleged that demonetisation was a planned “brutal conspiracy” and a “shrewd scheme” to convert the black money of Prime Minister Narendra Modi’s “suit-booted friends”.
“India will discover, no matter how the government tries to hide it, that demonetisation wasn’t just an ill-conceived and poorly executed economic policy with ‘innocent intent’, but a carefully planned, criminal financial scam,” Gandhi said in a statement.
“The full truth about demonetisation is not out yet. India’s people will not rest till it is,” he said.
Since 2016, economists around the world have analysed the crippling impact of demonetisation, concluding that demonetisation was an “unmitigated disaster” that didn’t meet a single of its stated objectives, Gandhi said, adding that the list of the “supposed objectives” has grown over time.
“From a war against counterfeit currency and terrorism, to permanently removing the scourge of black money; from increasing savings to forcing a shift to digital transactions; not a single stated objective of the government has been met,” he said, adding that Modi’s demonetisation cost India over one and a half million jobs and wiped out at least 1 per cent from India’s GDP.
He claimed that the worst hit by demonetisation were the poorest of the poor, who he said were forced to queue for days to exchange their meagre savings.
GDP continues to rise, says Jaitley
Responding to the overall criticism, Jaitley said demonetisation has strengthened the economy and increased the government resources to fund poverty alleviation and infrastructure development programme.”What has happened to prophets of doom who said India’s GDP will decline by at least 2 per cent. For the fifth year running India will be the fastest growing (large) economy in the world. It is continuing to happen. So prophets of doom have been proved wrong and conclusively proved wrong,” he later told reporters here.
“Even when there was global stress, we still manage to have respectable growth rates and we had the courage because of leadership of the Prime Minister that we took decisive steps and these steps which are not economically correct, which have helped the system in the long run; and the long run, in this case, does not mean generations,” the finance minister added.
He said that demonetisation has favourably impacted the tax system, digitisation and formalisation of the Indian economy. “Of course, there is a long distance we still have to cover and I am certain in the coming years the advantage of these movements in the right direction will strengthen the economy.”
The Union minister further said with the implementation of the goods and services tax (GST), it is now becoming increasingly difficult to evade the tax system and the indirect tax to gross domestic product (GDP) ratio has gone up to 5.4 percent post-GST, from 4.4 percent in 2014-15.
On the criticism that almost the entire cash money got deposited in banks post demonetisation, Jaitley said the proposition is “ill-informed” as confiscation of currency was not an objective of demonetisation.
The Narendra Modi-led government on November 8, 2016, demonetised high-value currency notes of old 500 and 1,000 rupee notes, constituting 86 per cent of the currency in circulation.
“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,” Jaitley said.
While those depositing cash in excess of their known sources of income faced punitive actions, larger deposits improved the lending capacity of the banks. Also, a lot of this money was diverted to mutual funds for further investments and it became a part of the formal system, Jaitley added.
Demonetisation, Jaitley said, has helped in formalising the economy, expanding the tax base and earmarking more resources for the poor and infrastructure development. He said the share of the indigenously developed payment system of unified payments interface (UPI) and RuPay cards has reached 65 per cent of the payments done through debit and credit cards.
This year, as on October 31, 2018, already 5.99 crore returns have been filed — which is an increase of 54.33 per cent compared to the previous year till this date. As many as 86.35 lakh new filers were added this year.
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