Describing the November 2016 demonetisation of Rs 500 and 1,000 currency notes as “a watershed moment for the Indian economy”, Finance Minister Arun Jaitley Tuesday said it not only changed the agenda and made corruption difficult but because it was a “morally and ethically correct” step, it was also “politically correct”. Making a powerful defence of the exercise on the eve of one year of demonetisation, Jaitley said reform initiatives taken by the BJP-led government had lifted India’s stature in the global economy, the measures preventing it from being knocked off the global radar and raising it to a position where all international agencies have been eulogising the structural reforms.
Recalling the Prime Minister’s demonetisation announcement on November 8, 2016, Jaitley said: “It was a watershed moment for the Indian economy.” While the Opposition has announced it will observe November 8 as a Black Day, the BJP will mark it as Anti-Black Money Day. Slamming the previous Congress-led UPA government for its “policy paralysis” and the poor state of economy with excess dependence on cash, Jaitley said the “status quo needed to be shaken up”.
Responding to former prime minister Manmohan Singh’s criticism of demonetisation — Singh called it a “reckless” exercise — Jaitley said the move was contradictory to the “loot that happened in the second generation spectrum scam, Commonwealth Games and allocation of coal blocks”.
“An anti-black money drive is (an) ethical drive, a moral step. And what is morally and ethically correct has to be politically correct,” he said. Jaitley took a swipe at Singh for saying that demonetisation had caused “reputational damage to India as a peaceful and stable nation for economic policy”: “All that Dr Singh has to do is to compare the relative credibility of Indian economy internationally pre-2014 and post-2014.
In pre-2014, you are being considered as an economy impacted by policy paralysis where the alphabet I (that stands for India) was being threatened to be knocked off BRICS. You were off the global radar. And today, there isn’t an international agency which does not eulogise the kind and quality of the structural reforms Indian is making.” Earlier in the day, Jaitley wrote a blog, listing the impact of demonetisation. He said it has met its objective of reducing cash in the economy, ending anonymity of cash, bringing more individuals into the tax net and dealing a body blow to black money.
In the blog, ‘A year after Demonetisation”, Jaitley said November 8, 2016 “signifies the resolve of this Government to cure the country from the ‘dreaded disease of black money’.”
In the overall analysis, he said, it would not be wrong to say that the country had moved to a much cleaner, transparent and honest financial system. “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 from the base scenario reflects that this intended objective has been met.”
He said after the demonetisation announcement, the currency in circulation was less by Rs 3.89 lakh crore, meeting the objective of less-cash economy to reduce the flow of black money into the system. “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,” he said, adding that from this inflow, suspicious transactions under the radar range from Rs 1.6 lakh crore to Rs 1.7 lakh crore. The tax administration and other enforcement agencies, he said, were using big data analytics to crack down on suspicious transactions. Undisclosed income admitted and detected, taken together, amount to Rs 29,213 crores, close to 18 per cent of the amount involved in suspicious transactions, he said. “Demonetisation is not a panacea for all, but it has changed the agenda,” Jaitley said.
In his blog, he said the removal of anonymity with currency had led to 56 lakh new individual tax payers filing returns this year until August 5, and self-assessment tax paid by non-corporate entities increased by 34.25 per cent.
“Undisclosed income admitted and undisclosed income detected taken together amounts to Rs 29,213 crore; which is close to 18% of the amount involved in suspicious transactions. This process will gain momentum under ‘Operation Clean Money’ launched on January 31, 2017.” He pointed out that the data collected had led to the identification of 2.97 lakh suspect shell companies and 2.24 lakh companies had been de-registered from the books of the Registrar of Companies after due process. “Actions are also being taken for freezing their bank accounts and debarring their directors from being on board of any company,” he said.
Also, SEBI had introduced a Graded Surveillance Measure at stock exchanges.The Finance Minister said demonetisation appeared to have led to acceleration in financialization of savings. “In parallel, there is a shift towards greater formalisation of the economy in the near term, aided by the introduction of Good and Services Tax (GST),” he said.
Maintaining that demonetisation also led to a big leap in digital payments, he said as many as 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 respectively. The value of transactions for debit and credit cards, in contrast, was Rs 1.6 lakh crore and Rs 2.4 lakh crore respectively during 2015-16.
“Reduction in incidents of stone-pelting, protests in J&K and Naxal activities in LWE affected districts are also attributed to the impact of demonetisation as these miscreants have run out of cash,” Jaitley said. “Their access to fake Indian Currency Note (FICN) was also restricted,” he said.
Taking on the Congress over the issue, Jaitley said the previous Congress governments never took any big step against black money. “The Congress’s main aim is to serve the family whereas BJP wants to serve the nation,” he said.