Reflections On Demonetisation

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On the second anniversary of the demonetisation which was kick-started by the Union Government.  Instituting the demonetisation, Narendra Modi, Prime Minister of India, stated, “To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8th November 2016. This means that these notes will not be accepted for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper.” The chaos erupted. A huge number of people faced the multiple challenged in order to exchange the old notes and fetching new notes. The decision grabbed the attention from various hues ranging from the political parties, researchers, journalists, and common people. It has emerged as a contested issue. Commenting on the demonetization, Maitreesh Ghatak, Professor of Economics at the London School of Economics, “The worst hit has been the unorganized sector where cash is king, and plastic means bags to carry goods, not credit or debit cards.” A huge of people are confused amidst the claims and the counter-claims.  It was reported that 99.30 percent of demonetized money back in the system, says RBI report.

Widening Tax Reach in India: 

Source: The Economic Survey 2018

Hailing steps, the Economic Survey 2018 underlined, “Government measures to curb black money and encourage tax formalization, including demonetization and the GST, have increased personal income tax collections substantially.” According to the Economic Survey 2018, there has been a large increase in registered indirect and direct taxpayers. As the survey stated, a 50 percent increase in unique indirect taxpayers under the GST compared with the pre-GST system. Similarly, there has been an addition (over and above-trend growth) of about 1.8 million in individual income tax filers since November 2016. The Union Finance Minister Arun Jaitley has strongly defended the Demonetisation on its second anniversary.  In a Facebook post, Finance Minister described demonetisation as a “key step in a chain of important decisions taken by the government to formalize the economy”.

Whether the policy of demonetisation has met its goals to curb out black money and undisclosed assets? It an important question which must be addressed with help from a credible and comprehensive study.