On the second anniversary of demonetization, finance minister Arun Jaitley illuminated that the genuine motivation behind demonetization was not the appropriation of money but rather to convey it to the formal economy and make the holders settle government tax.
“Confiscation of currency was not an objective of demonetisation. Getting it into the formal economy and making the holders pay tax was the broader objective. The system required to be shaken in order to make India move from cash to digital transactions,” Jaitley said.
Arun Jaitley Says the Purpose Demonetization at 2nd Anniversary
Jaitley, while posting the number of reforms taken by the BJP-drove NDA government to battle the dark economy, said that demonetization brought about expanding the duty base and a higher tax collection (both immediate and backhanded) for the government, along these lines enhancing its fiscal health.
“The impact of demonetisation has been felt on collection of personal income tax. Its collections were higher in Financial Year 2018-19 (till 31-10-2018) compared to the previous year by 20.2%. Even in the corporate tax the collections are 19.5% higher. From two years prior to demonetisation, direct tax collections have increased 6.6% and 9% respectively. In the next two years, post demonetisation the increase by 14.6% (part of the year before impact of demonetisation in 2016-17) and an increase of 18% in the year 2017-18,” Jaitley wrote.
The effect on government’s digital transaction activity UPI was perceptible as it saw a significant hop post demonetization with exchanges developing from Rs 0.5 billion in October 2016 to Rs 598 billion in September 2018. The value of BHIM exchanges also went up significantly post demonetization, and also giving a fillip to the government’s efforts to extend the digital payment space.
“The Unified Payment Interface (UPI) was launched in 2016 involving real time payments between two sets of mobile holders. Its transactions have grown from Rs. 0.5 billion in October, 2016 to Rs. 598 billion in September, 2018,” Jaitley said.
“It (BHIM) is currently used by 1.25 Crore people. The value of BHIM transactions has gone up from Rs. 0.02 billion in September, 2016 to Rs. 70.6 billion in September, 2018. The share of BHIM transactions in overall UPI transactions is at about 48% in June, 2017,” he added.
“Larger deposits in banks improved lending capacity for the banks. A lot of this money was diverted to the Mutual Funds for further investments. It became a part of the formal system,” he wrote.