Demonetisation shook up the system: Jaitley
NEWDELHI: On the second anniversary of the invalidation of highvalue currency notes, finance minister Arun Jaitley rose to the defence of the National Democratic Alliance (NDA) government on Thursday in the face of a barrage of criticism by Opposition leaders, including former prime minister Mahmohan Singh who said the scars on the economy were becoming more visible, and Congress president Rahul Gandhi who called it a “day of infamy.”
Jaitley, in a blog post, wrote that the ban on old ~500 and ~1,000 notes was needed to shake up the system and move India from cash to digital transactions.
“An ill-informed criticism of demonetisation is that almost the entire cash money got deposited in the banks. Confiscation of currency was not an objective of demonetisation,” Jaitley said in the post that coincides with protests planned by the Congress to mark the anniversary.
Late in evening on November 8, 2016, Prime Minister Narendra Modi announced that old ~500 and ~1,000 banknotes would cease to be legal tender from midnight the same day, rendering worthless 86% of the currency in circulation by value. The move, aimed at unearthing untaxed income, weeding out fake currency and curbing terrorist finance, led to a cash crunch that lasted months and hit small businesses hard.
Jaitley said moving money into the formal economy and making the holders pay tax was the broader objective of the note ban, noting that the number of income tax return filers had increased from 38 million when the NDA came to power in May 2014 to 68.6 million four years later.
“By the time the first five years of this government are over, we will be close to doubling the (tax) assessee base,” he said, attributing the sharp increase to the note
ban. “Despite an annual income tax relief of ~97,000 crore given to the smaller tax payers and a ~80,000 crore relief given to the GST (goods and services tax) assesses, tax collections have gone up. Rates of taxes, both direct and indirect have been reduced, but tax collections have gone up. The tax base has been expanded. GST rates on 334 commodities which were paying an effective 31% tax pre-GST have witnessed a tax reduction,” Jaitley wrote, summing up the end result of the note ban as “more formalisation, more revenue, more resources for the poor, better Infrastructure, and a better quality of life for our citizens.”
The ruling Bharatiya Janata Party (BJP) posed a list of questions to the Congress to answer, challenging it to cite even one step taken by the previous United Progressive Alliance (UPA) government to eliminate corruption and black money or benefit small businesses, why it chose to defame India and create an atmosphere of gloom, why it was unhappy with global recognition of India’s economic prowess, and why it opposed formalisation of the economy. The offensive came in the face of trenchant criticism of demonetisation, which Gandhi termed a “tragedy.”
“India has faced many tragedies in its past. Many a time have envious, external enemies tried to hurt us. But demonetisation is unique in the history of our tragedies because it was a self-inflicted, suicidal attack that destroyed millions of lives and ruined thousands of India’s small businesses. The worst hit by demonetisation were the poorest of the poor, forced to queue for days to exchange their meagre savings,” the Congress leader said in a statement.
“More than a hundred and twenty Indians died in those queues. We must never forget them. Millions of small and medium businesses were smashed and the entire informal sector devastated,” Gandhi said.
Former prime minister Singh said the invalidation of highvalue banknotes was “ill-fated and ill-thought”.
“The havoc that it unleashed on Indian economy and society is now evident to everyone, ” Singh said in a statement on Thursday. “We are yet to understand and experience the full impact of the demonetisation exercise. With a depreciating currency and rising global oil prices, macroeconomic headwinds are also starting to blow now.”
Singh said the note ban had an impact on every person, regardless of age, gender, religion, occupation or creed. “It’s often said that time is a great healer. But unfortunately, in case of demonetisation, the scars and wounds of demonetisation are only getting more visible with time.”
He said that this has had a “direct impact on employment” as the economy continues to struggle to create enough new jobs for our youth. “The financial markets are volatile as the liquidity crisis wrought by demonetisation is taking its eventual toll on infrastructure lenders and nonbank financial services firms.”
Advising the government to not resort to further “unorthodox, short-term economic measures” that can cause uncertainty in the economy and financial markets, Singh said, “Today is a day to remember how economic misadventures can roil the nation for a long time and understand that economic policymaking should be handled with thought and care.”
Former finance minister P Chidambaram said demonetisation was essentially a money laundering exercise and none of its original objectives had been achieved.
“Demonetisation did not put an end to generation or use of black money. Almost on a weekly basis, the Income Tax Department claims to have seized black (or unaccounted) money,” he said. * Demonetisation did not put an end to fake currency. On the contrary, counterfeiters have successfully counterfeited the new ~2,000 and the new ~500 notes. Demonetisation did not render any currency notes “worthless” and the government did not reap a bonanza of ~3 lakh to ~4 lakh crore. All the demonetised notes — actually 99.30% — were returned to the RBI (Reserve Bank of India). Practically every single currency note was officially exchanged at bank counters. It was the most ingeniously designed official money laundering scheme.”