Cash Hold­ings Slip 20%, Tax Pay­ers grow 45% on Note Ban

Eco­nomic Sur­vey II says nom­i­nal GDP growth ac­cel­er­ated post Nov move

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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.

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