Chennai: Demonetisation, the biggest move undertaken by the Indian government to control parallel income and bring in cash-less economy to the forefront. It has been two years and News Today looks at what has changed over time.
Finance Minister Arun Jaitley was clear in his stand and stated that the objective of note ban was not to confiscate currency but to increase tax collection. In his blog, he wrote that it was “an ill-informed criticism” that the entire cash money got deposited in the banks after demonetisation.
“Confiscation of currency was not an objective of demonitisation,” he said and added, “Getting it into the formal economy and making the holders pay tax was the broader objective.”
He further stated that the impact of demonetisation has been felt on the collection of personal income tax and the move of government has led to financial inclusion which in turn has ensured that even weaker sections became part of the formal economy.
What it achieved
Regardless of the tangible results, demonetisation was the biggest crackdown on parallel economy modern India ever witnessed. It led to the creation of a more formalised economy. Most money in circulation can be now raced to the sources and taxmen have a better grip on those who have deposited illicit money in their bank accounts.
MSMEs suffered though
Cash-intensive industries like SMEs, MSMEs suffered the most when cash disappeared from the system for a good three-four months. Supply chains took a major hit. Things improved when cash returned but many failed to survive and reports emerged of several micro-units shutting shops which meant job losses.
The central bank of India faced flak asfter it stated that almost all of the demonetised notes came back to the bank counters. This seemed to dampen the spirits of people who expected that a significant chunk of unlawful money will not return and that amount can be put in use for productive purposes. The RBI governor received a lot of flak for the delay in announcing the result, including from a Parliamentary committee for in making the information public.
Increased tax collections
The biggest achievement of demonetisation is the mainstreaming of the economy, with GST adding weight to it. The collection of GST on the back of demonetisation has also gone up crossing the Rs 1 lakh crore mark per month many times over. Direct taxes collection too have gone up.
A dream too big?
RBI data states that the currency in circulation spiked to Rs 19.6 lakh crore as on 26 October, registering a growth of 9.5 per cent from two years ago and compared with Rs 17.9 lakh crore on 4 November 2016, the week before note ban. Further ATM withdrawals too picked up leaving the ‘cash-less economy’ in pursuit of coming to life.