Did Demonetisation Fail To Fulfil Its Purpose? Certainly Not, Says Arun Jaitley
Recently, an RBI report said that 99.3% of the demonetised notes have been returned. After this, finance minister Arun Jaitley claimed that PM Modi’s widely debated demonetization move has resulted in stronger economic growth and higher tax revenue. In his reply to the opposition’s claims that demonetization gravely failed in its objectives, He said in a Facebook post that the purpose of demonetisation was not defeated as it was done to make India more tax compliant.
Was the invalidation of the Non-deposited currency the only object of demonetisation? Certainly Not. The larger purpose…
In a Facebook note “Demonetisation and its impact on Tax collection and Formalisation of the Economy”, Jaitley explained that the invalidation of the undeposited currency was not the only objective of the move, but rather the bigger purpose of note ban was to change India from a Non-tax compliant society to a tax compliant society. In his post-Jaitley goes on pointing out factors that support his argument.
FM Arun Jaitley asserts that income tax collection two years before demonetisation was 6.6% and 9%, and two years post-Demonetisation it has increased to 15% and 18%. He stated that income tax collection from 2013-14 was 6.38 Lakh crores and after Demonetisation in 2017-18 it had increased to 10.02 Lakh crores. He maintains that in the past years since Demonetisation, the number of new returns filed has increased by 85.51 Lakhs and 1.07 crores. He also said that in the past two years, there has been a phenomenal increase in the Income-tax returns by 19% and 25%. He also goes on to explain how close to a million people have been slammed with tax and penalties after they deposited their money in the bank as part of demonetisation. “More formalisation of the Economy, More Money in the System, Higher Tax Revenue, Higher Expenditure, Higher Growth after the first two quarters,” is what resulted from demonetisation, Arun Jaitley claimed.
Earlier, during the release of Reserve Bank of India’s Annual Report for 2016-17, Arun Jaitley had told reporters that the objective of demonetisation was not confiscation of money. “The object of demonetisation was that India is predominantly a high-cash economy and, therefore, that scenario requires to be significantly altered,” he added.
What PM Modi Said?
In his 2017 Independence Day speech, Narendra Modi was all praise about the benefits of his note ban. He claimed that because of his move, Rs 1.75 lakh crore that was deposited in banks and over 1.8 million people with disproportionate assets are under government watch, also claiming that the crackdown of black money will continue. “More than Rs 2 lakh crore black money has reached banks, and now people depositing such money are being made to answer questions on their origin,” he said.
He added that the registration of 175,000 companies out of 300,000 shell companies identified during the demonetisation process had been cancelled. He also claimed that they were able to confisticate around Rs. 800 crores worth of ‘Benami’ property. Last year, on the eve of completing one year of Demonetization, PM Modi tweeted with #AntiBlackMoneyDay calling a victory on black money.
— Narendra Modi (@narendramodi) November 8, 2017
On the same day of the announcement of demonetization, BJP President, Amit Shah had also lauded the move made by Prime Minister Modi as an attack on black money.
Announcements made by PM @narendramodi are exactly what is needed to uproot corruption, black money, hawala & fake currency rackets.
— Amit Shah (@AmitShah) November 8, 2016
Prime Minister Narendra Modi on November 8, 2016, brought India to a standstill when he announced on the national news that from midnight onwards Rs.500 and RS.1000 notes will be banned. His made tall claims, stating that the motive was to clear the black money menace in I down economy, force its citizens to pay taxes for every unaccounted cash, fight terrorism funding and make India a cashless economy by promoting digital India initiatives.
What India achieved from demonetization
The Modi government was able to establish some of its objectives while they failed terribly some other areas. According to The Economic Times, the demonetization was able to curb terrorism by obstruction of terror funding. It was also successful in making Indians accountable for the money laying around their homes and depositing it in bank accounts. This has led to a record 80% increase in the number of income taxpayers, as 9.1 million new taxpayers were added. The demonetization has also arguably pushed India forward to the digital age by making cashless online transactions popular.
It is debatable if the demonetization has succeeded in curbing the black money flow in the Indian economy as around 99% of the money was reportedly deposited back to RBI. As several financial experts have said time and again, those involved in the black money business, less than 6% illicit wealth in India is held in the form of cold cash. Within a year of demonetisation, GDP has fallen by 5.7%, and the world bank had reduced the India GDP growth forecast to 7% for 2017-18 solely based on demonetization and GST. Medium, Small and Micro Enterprises (MSME) is another area that demonetization had a lasting effect on. MSME owners were never a part of the black money market, and because of that, they were badly affected by the ban. Many had to give up and return to their villages that the growth rate of these companies went down to a mere 1%.
Deaths due to Demonetization:
Media reports have shown that 66 people including 11 bank employees had died directly or indirectly due to demonetization. Causes of death ranged from heart attacks from shocks of the news, suicide, exhaustion from standing in bank ques, deaths when hospitals refused to accept banned currency notes and many more.
The Logical Indian take
The question remains, was it worth it? Was it worth the troubles the common man faced immediately following note ban, to catch just .7% of the illegal wealth? Was it worth the death of so many people to crackdown counterfeit notes which is estimated to be fewer than 0.02% of all currency notes? Was it indispensable?