The Economist India Summit 2017: Expected note ban to dent a few quarters, positive later, says Arun Jaitley

“When demonetisation was initially announced, there was an element of uncertainty. There have not been many such experiments the world over and, therefore, it is natural that there will be speculation as to how much money will come back,” Jaitley said at The Economist India Summit 2017.

“As the demonetisation progressed and the monies were deposited, it was quite clear that people found ways and means, legitimately or otherwise, to get the money into the banking system irrespective of the consequences they will face later. It was clear that overwhelmingly large amount of money had come back into the banking system, something which was not of great consequences to us in the government,” he said.

He said it was obvious that people found ways and “I think it did shake the system”. But “the fact that money has got into the banking system doesn’t mean that they are legitimate money. Or the monies have got legitimately converted,” he said. Such money will become legitimate when people pay taxes on it, he said, adding that the entire exercise had improved revenues of the government which would help it improve spending.

“The anonymity around the money which was otherwise floating in the system has come to an end. The money got identified with the owner. And henceforth, he was fixed with explaining the liability of the money,” he said.

The result of demonetisation has been that more and more people will now be compelled to come into the tax net, a fact evident from both direct and indirect tax numbers, Jaitley said.

Asked if demonetisation was good for the Ministry of Finance but not for the citizens who lost lives, jobs and faced hardship, he said: “I think what is good for India is good for Indian citizens.”

Jaitley said despite the pain, the move had won public support. “I had a supportive voter immediately after the… (demonetisation),” Jaitley said, apparently referring to the BJP’s victory in UP polls in March 2017.

On the cost associated with note ban, he said the status quo of a parallel economy running could not have been allowed to go on indefinitely. “In third quarter (of 2016-17 fiscal), when demonetisation took place, GDP wasn’t substantially impacted. We had anticipated that one or two quarters could be impacted but the larger impact is you have 25 per cent more people filing income tax returns.”

“Therefore when you say you spent money on printing of currency you have a very narrow vision… currency replacement takes place even in normal course. If you hadn’t been printing new currency but printing old currency, this is a kind of trifling argument,” he said.

Jaitley said demonetisation has not completely eradicated black money but kept a check on a large part. “It’s nobody’s case that the black money has totally been eliminated. There are still people who will be doing such transactions. But, I think, a large amount of that has come in,” he said.