Note ban not enough to stop stash buildup

New Delhi: Demonetisation, announced by Prime minister Narendra Modi on November 8, did not impede future black money flows in new denominations and complementary measures would be required to target all forms of undeclared wealth and assets, said a UN body.

“The measure did not, by itself, impede future black money flows in new denominations,” said United Nation’s ‘Economic and Social Survey of Asia and the Pacific 2017’ said.

It said that while estimates of the size of the black economy vary at about 20-25 per cent of GDP, cash is estimated to make up only about 10 per cent of that value.

“Thus, complementary measures would be required to target all forms of undeclared wealth and assets,” said the report. It pointed out that broader structural reforms which could also contribute to enhanced transparency include: the implementation of GST; voluntary disclosure of income scheme; and tracking of high-value transactions through taxpayer identification numbers,” said the report.

Other measures, such as reforming the real estate registration process to ensure transparency, are being discussed, it said.

However, the report said that a more permanent increase in digital-enabled and non-cash-based transactions is likely, driven by awareness of cash-alternative solutions during the demonetisation exercise and strong government advocacy and incentives.

But, it said that digital payments are not a daily tool of most people in India, accounting for only 20 per cent of total transactions and 5 per cent of personal consumption expenditure.

“Moving towards a cashless economy will require addressing household determinants of cash dependence beyond technology adoption, including low financial inclusion, high informality, persistent gender inequality in access to finance, low financial literacy, low ICT infrastructure and large gaps in energy access,” said the report.

“In the medium-term, the currency initiative is expected to bring more economic activities into the formal sector and spur digitisation of financial transactions, helping to broaden the tax base and secure the fiscal space needed for public social and infrastructure expenditures.”

In India, there were only 33.1 million effective taxpayers in 2014/15 for a population of more than 1.2 billion people. “The one-off currency measure in effect transferred lost black money to the government through unclaimed or unexchanged notes. Preliminary estimates suggested a 97 per cent recovery of notes, which would imply a 3.16 per cent increase in fiscal revenues for the government,” said the report.