On the first anniversary of demonetisation, Prime Minister Narendra Modi termed it a historic and multi-dimensional success. He tweeted: Demonetisation was a “decisive battle” 125 crore Indians fought against black money and won. He said the move formalised the Indian economy and ensured better jobs for the poor, while cleansing the financial system. Arun Jaitley, Union Finance Minister, stated that November 8, 2016 would be remembered as a watershed moment in the history of Indian economy. This day signifies resolve of this Government to cure the country from “dreaded disease of black money”. The country has moved on to a much cleaner, transparent and honest financial system. “The next generation will view post November, 2016 national economic development with a great sense of pride as it has provided them a fair and honest system to live in.”
According to Jaitley, One of the important objectives of demonetisation was to make India a less cash economy and thereby reduce the flow of black money in the system. The reduction in currency in circulation by Rs. 3.89 lakh crore from the base scenario reflects that this intended objective has been met. “With the return of Rs.15.28 lakh crore in the formal banking system, almost entire cash holding of the economy now has an address. It is no more anonymous”.
People have got multiple benefits from demonetisation like reduced rate of interest on loans, decrease in real estate prices and increase in income of urban local bodies etc., besides following impacts:
Increase in tax compliance:
- New Taxpayers increased by 26.6% from 66.53 lakh in 2015-16 to 84.21 lakh in 2016-17.
- Number of e-returns filed increased by 27.95% from 2.35 crore in 2016-17 to 3.01 crore in 2017-18.
- 56 lakh new individual tax payers have filed their returns till August 5, 2017 compared to about 22 lakh last year.
Cleaner, transparent and honest financial system:
- The leads gathered due to data collected during demonetisation have led to the identification of 2.97 lakh suspect shell companies, of which 2.24 lakh companies struck off.
- Many of these companies are found to have more than 100 bank accounts; one company had 2134 accounts.
- 58000 bank accounts belonging to 35000 companies caught transacting Rs. 17000 crore after demonetisation
- Undisclosed income admitted and detected: Rs.29213 crore, close to 18 per cent of the amount involved in suspicious transactions
- 73 lakh cases where cash transactions did not match tax profile are under investigation of tax authorities. Suspicious transactions under the radar range from Rs 1.6 lakh crore to Rs 1.7 lakh crore.
- Cash deposits of 3.68 lakh crore in 23.22 lakh accounts under suspicion
- The tax administration and other enforcement agencies are using big data analytics to crack down on suspicious transactions.
Push towards formalisation and workers welfare:
- Direct transfer of salary into bank accounts of workers
- 01 crore employees enrolled with Employees’ Provident Fund Organisation (EPFO)
- 3 crore workers registered with Employees’ State Insurance Corporation (ESIC) thus bringing social security and health benefits to them.
Cleaner economy for the nation:
- High denomination notes brought down by about 6 lakh crore
- In August 2017, number of digital transactions stands at 138 crore as against 87 crore in August 2016, an increase of 58%.
- From having a total of 15.11 lakh POS machines till demonetisation, more than 13 lakh machines added just in 1 year.
- 110 crore transactions, valued at around Rs.3.3 lakh crore and another 240 crore transactions, valued at Rs.3.3 lakh crore were carried out through credit cards and debit cards.
Decisive blow to terrorism and naxalism due to lack of funds:
- Stone-pelting, shooting & bombing incidents in Kashmir reduced by 75%
- Incidents of Left Wing Extremism down by more than 20%
- 62 lakh counterfeit notes detected.
It is unambiguously clear that the decision has been a resounding political success. Jaitley termed the move as “historic”, being “ethically correct and morally correct,” adding that such a move “could not but be politically correct.” It sent out a clear message that the government is determined to clamp down on black money and is prepared to take unorthodox measures for that. The most impactful consequence of demonetisation is the significant formalisation of the economy. It has pushed the system towards the formal economy including the informal sectors. The formal economy GDP has gone up. There is a significant long-term trend. As we get more formal there will be two aspects, the formal economy will be more productive and by logic it will be more transparent. Also getting much better on the global indices like the World Bank Index, as transparency improves and the productivity levels improve the Indian economy’s positioning from a global basis improves.
The short-term gains have been in the destruction of huge amounts of black money overnight. Black money has never helped the economy. Also, since it is a parallel economy, the common man doesn’t benefit from it. Demonetisation provided the sure fire way to bring maximum cash into the tax net, as the only way the cash in hand could be saved was to deposit the same.
Demonetisation has also given the tax department a bird’s eye view of deposits based on which evaders can be investigated and penalised. Another short-term gain is the enhanced security our country is experiencing.