New Delhi: Union finance minister Arun Jaitley on Thursday credited demonetisation for a sharp jump in tax collections, and claimed that the effects of the 50-day drive were not as adverse as predicted by some critics.
“Of course, there would be areas which would be adversely impacted. But in the long term, the changes coming about in the system will mean a much larger and cleaner GDP,” he said.
As the deadline to deposit the scrapped high-value bills ends on Friday, he said that the critical phase for the economy was over, and the situation would only improve in coming weeks and months. He said that the Reserve Bank of India (RBI) would take a call on when to ease the curbs on cash withdrawals.
“The remonetisation process has substantially advanced, significantly without a single incident of unrest anywhere in the country. The RBI has very large amounts of currency available to meet the demand,” he said.
The minister said that there had been a 13.6 per cent increase in income tax collection till December 9, while indirect tax collection went up by 26.2 per cent till November 30. He also said that demonetisation boosted sectors such as life insurance, tourism, petroleum, mutual funds and agriculture.
Mr Jaitley also said that a lot more money had come into the banking system, but refused to hazard a guess on India’s GDP growth or the possible impact on tax proposals in his February Budget.
Prime Minister Narendra Modi’s announcement on November 8 to scrap Rs 1,000 and Rs 500 notes — 86 per cent of the cash in circulation — to fight black money and fake currency led to a crippling cash crunch, hitting India’s largely cash-based economy and clouding growth forecasts.
“We are extremely grateful to the people of India who have in very large measure supported the move,” Mr Jaitley said. He said the paper currency should shrink, and a large part of businesses should be done electronically or through cheques.
The government said that as many as 60 lakh individuals and firms made large deposits totalling an astonishing Rs 7 lakh crore in old notes during the period, and warned that every penny of tax would be extracted as people “cannot turn black money into legal currency by merely putting it in banks.” These are big cash deposits.
RBI governor Urjit Patel also said that demonetisation would have “far reaching changes” towards a transformative effect on the economy, despite some short-term disruptions and “public hardship”.
There was “little room for complacency and it is important to guard against sporadic volatility in financial markets”, he said in his foreword to the half-yearly financial stability report.
The scramble for cash caused a string of deaths, prompting an unrelenting Opposition attack on the government and disrupting an almost entire Parliament session.
While announcing his radical monetary reform, Mr Modi had promised to restore normalcy by the end of the year, but queues have stayed outside low-on-cash banks and ATM kiosks.
The Congress demanded that PM Modi should apologise to the nation for the “suffering” caused to the people by the note ban, and vowed to hold countrywide protests from January 6.
Congress’ chief spokesperson Randeep Surjewala said that the PM was good at making announcements that are far from reality. “Even after 50 days of demonetisation step, normalcy has not been restored. PM Modi’s demonetisation move has turned out to be ‘Deshbandi’ (lockdowbn of country),” he said.
