Finance Minister Arun Jaitley while expressing his views on the eve of demonetisation anniversary in a write-up titled A Year After Demonetisation called November 8, 2016 as a “watershed moment in the history of Indian economy.” In an effort to fight black money and corruption, Prime Minister Narendra Modi on November 2016 had announced the scrapping of the old Rs 500 and Rs 1000 currency notes. The PM had announced that post 8 November the notes would no longer remain legal tender. Since then the Modi-led government has been continuously trying to advocate and promote a ‘less-cash’ economy.
However, the opposition parties including the Congress have not accepted the ‘less-cash’ reasoning of the current government and have been criticising the Centre’s move of pushing for digital payments and transactions through banks. Arun Jaitley at the inauguration of the Punjab National Bank head office (new building) earlier this week had said: “Excessive dependence on cash has its own cost. It is not just cost but there is a curse of cash. It has impact on both society and economy.” The Finance Minister earlier today, 7 November, penned his views on the entire demonetisation exercise and the implementation of GST by the Modi government in the write-up on his website arunjaitley.com
Here are a few excerpts from the Finance Minister’s write-up:
- November 8, 2016 would be remembered as a watershed moment in the history of Indian economy. This day signifies the resolve of this Government to cure the country from “dreaded disease of black money”.
- One of the important objective of demonetisation was to make India a less cash economy and thereby reduce the flow of black money in the system. Why should we remove excess currency from the system? Why should we curtail cash transactions? It is common knowledge that cash is anonymous. When demonetisation was implemented, one of the intended objectives was to put identity on the cash holdings in the economy. 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. From this inflow, the amount involving suspicious transactions based on various estimates ranges from Rs.1.6 lakh crore to Rs.1.7 lakh crore. Now it is with the tax administration and other enforcement agencies to use big data analytics and crack down on suspicious transactions.
- The leads gathered due to data collected during demonetisation period have led to identification of 2.97 lakh suspect shell companies. After issuance of statutory notices to these companies and following due process under the law, 2.24 lakh companies have been de-registered from the books of Registrar of Companies.
- Post demonetisation, SEBI has introduced a Graded Surveillance Measure in stock exchanges. This measure has been introduced in over 800 securities by the exchanges. Inactive and suspended companies many a time are used as harbours of manipulative minds. In order to ensure that such suspicious companies do not languish in the exchanges, over 450 such companies have been delisted and demat accounts of their promoters have been frozen; they have also been barred to be directors of listed companies. Around 800 companies listed on erstwhile regional exchanges are not traceable and a process has been initiated to declare them as vanishing companies.
- Demonetisation appears to have led to an acceleration in the financialisation 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). Some of the parameters indicating such shift are given below:
- 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 transaction for debit and credit card was Rs.1.6 lakh crore and Rs.2.4 lakh crore respectively during 2015-16.
Total value of transaction with Pre-Paid instruments (PPIs) have increased from Rs.48,800 crore in 2015-16 to Rs.83,800 crore in 2016-17. Total volume of transactions through PPIs have increased from about 75 crore to 196 crore.
- During 2016-17, National Electronic Funds Transfer (NEFT) handled 160 crore transactions valued at Rs.120 lakh crore, up from around 130 crore transactions for Rs.83 lakh crore in the previous year.
With higher level of formalisation, it has brought out related benefits to workers who were denied of social security benefits in the form of EPF contribution, subscription to ESIC facilities and payments of wages in their bank accounts. Large increase in opening of bank accounts for workers, enrolment in EPF and ESIC are added benefits of demonetisation. More than 1 crore workers were added to EPF and ESIC system post-demonetisation which was almost 30% of existing beneficiaries. Bank accounts were opened for about 50 lakh workers to get their wages credited in their accounts. Necessary amendment in Payment of Wages Act was done to facilitate this.
- The reduction in incidences 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. Their access to Fake Indian Currency Note (FICN) was also restricted. During 2016-17, the detection of FICN for Rs.1000 denomination increased from 1.43 lakh pieces to 2.56 lakh pieces. At the Reserve Bank’s currency verification and processing system, during 2015-16, there were 2.4 pieces of FICNs of Rs.500 denomination and 5.8 pieces of FICNs of Rs.1000 denomination for every million pieces notes processed; which rose to 5.5 pieces and 12.4 pieces, respectively, during the post-demonetisation period. This shows almost doubling of such detection.
- In an overall analysis, it would not be wrong to say that country has moved on to a much cleaner, transparent and honest financial system. Benefits of these may not yet be visible to some people. The next generation will view post November, 2016 national economic development with a great sense of pride as it has provided them a fair and honest system to live in.