“आज मध्यरात्रि यानी 8 नवम्बर 2016 की रात्रि को 12 बजे से वर्तमान में जारी ₹500 और ₹1000 के currency note legal tender नहीं रहेंगे”
These words are etched forever in the memory of 1.25 billion people of India. On 8th November 2016, the prime minister of the nation Shri Narender Damodardas Modi demonetised Mahatma Gandhi series of ₹500 and ₹1000 currency. Supposedly it was to curb black money, reduce finances available to Terrorists and Naxalite. Specified bank notes(cessation of liabilities) ordinance 2016 was brought by the Government of India on 18 December 2016. Later, Prime Minister stated it was to encourage digital transaction. And recently Finance Minister Arun Jaitley stated its actual motive was to expand the tax base.
On the 2nd anniversary of demonetisation let us have a look at it.
One of the inimitable benefit is the expansion of the tax base. The following data will help in presenting a clearer picture:
-In FY 15 & FY 16
-India’s direct tax collection showed a growth of just 8.9% & 6.9% respectively.
-In FY 17 & FY18
-It increased 14.6% & 17.1%
Last time such increase in tax base was seen in FY ’14 ( during UPA2) & FY ’11
– that was 14.3% & 18%
– However direct tax buoyancy then comes into the picture
DIRECT taxes are levied as a percentage of annual income, hence it is expected the rise in IT collection will be in congruence with the GDP figure:
-In FY ’14, 3.79 crore IT returns were filed
-In FY ’16, 4.36 crore, an increase of 15%
But in FY’18, it increased to 6.84 crores, a 57% increase in just two years.
Once a citizen begins to file income tax return, a contribution to direct tax collection would follow. The current tax base of India stands at 8.27 crore tax paying entities.
Now the tax authorities are required to scrutinize through accounts with suspiciously large deposits. They have to analyze deposits and correlate them with the tax payment records.
The parliamentary committee led by Veerappa Moily was constituted. It consisted of 14 opposition leaders and 17 members from the ruling party. The shortcomings suggested were:
-Demonetisation led to lowering of GDP by 1%.
-Acute shortage of cash.
-Led to wage and trade loss.
-Led to large size unemployment in the formal sector.
-Huge cost to the exchequer in the printing of currency.
However MPs from ruling dispensation allegedly stopped it from tabled and subsequently, it’s acceptance
Early trends showed an inclination towards digital payment but as soon as cash flow increased, it did not sustain.
Even after two years, the picture remains uncomprehensive, only time can tell the long-term effect it has on the economy. We, at Threekins, have tried to present the comprehensive scenario on the second anniversary of what was touted as one of the biggest reforms in the country to fight black money and corruption.
What do you think about the effect of demonetisation on the economy?
Do provide your views in the comment section below.