Cash Holdings Slip 20%, Tax Payers grow 45% on Note Ban
Economic Survey II says nominal GDP growth accelerated post Nov move
New Delhi: There has been a 20% decline in cumulative cash holding by companies and individuals post demonetisation while the number of taxpayers has increased 45% since then, the Economic Survey has said, pointing to positives from the withdrawal of high-denomination banknotes in November last year.
“The holding of cash is about .₹ 3.5 lakh crore less than what might have been the case had predemonetisation trends prevailed,” said the Economic Survey 2016-17 Volume 2 that finance minister Arun Jaitley tabled in Parliament on Friday. “Demonetisation should continue to pay dividends over time as the impetus towards formalising the economy and expanding tax base that it has set in motion continues.”
It said the number of taxpayers increased 45% in 2016-17 as an effect of demonetisation, compared to 25% rise in the previous year. “The tax base did expand after demonetisation…the full effect of collections will monetise gradually as reported income of new payers grows,” the survey said.
It has been nine months since demonetisation now. While estimating fall in cash holding, the Economic Survey has assumed that remonetisation has happened fully and the supply of cash is now fully reflective of demand.
The survey also said a new enforcement and compliance regime and increased digitalisation
have reduced cash use for transactions. “Level and pace of digitalisation are substantially greater than before demonetisation.” This was visible across poor, less affluent and affluent classes.
Inter-bank transactions using Aadhaar-enabled payment system for “digitally excluded,” for instance, have gone up from less than .₹ 2 billion to over .₹ 12 billion during November 2016-May 2017.
On demonetisation’s impact on real estate, the survey said it was expected to reduce black market transactions, to be manifested in reduced property prices.
The survey also said that while real growth of the economy decelerated after demonetisation, the nominal GDP growth actually accelerated. Growth for the year as a whole was much higher than 6.50-6.75% estimated in the first Economic Survey 2016-17, tabled on Parliament on January 31.
It studied Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) data to examine if demonetisation induced greater demand for social insurance. Less developed states such as Bihar, Chhattisgarh, Jharkhand, Rajasthan, West Bengal and Odisha witnessed around 30% rise in mandays worked between November 2016 and March 2017. The survey noted that there was a striking absence of any demonetisation effect in Uttar Pradesh.
“More research is needed to disentangle all the rich and complex interactions between demonetisation and its impact on the informal sector,” the survey said.