Placement Preparation - A Guide To Demonetization And Black Money

• GDP of India has seen a decline for 3 successive quarters after Demonetization. Dr Manmohan Singh, in his speech in RajyaSabha earlier this year, predicted a reduction in GDP growth of almost 2% which almost came true in GDP data released for last quarter.
• Real estate sector which was speculated to accommodate the maximum black money took a hit and hasn’t recovered.
• Informal sector of India has taken a strong hit and witnessed large scale unemployment. As per CMIE, 1.5 million jobs were lost in first four months of 2017.
• The stand of government has changed several times during the last 10 months:
• As per RBI, 99% of total notes which were demonetized have come back. It took them more than 9 months to count the notes as there were concerns that money which got back into the system could have more than the amount demonetized.
• Cost of printing the new notes was close to Rs 8000 crores, opportunity cost lost in GDP growth is more than Rs 2 Lakh Crore, whereas the gain achieved by RBI in terms of notes not returned is Rs 16000 crore.
• While initially, government claimed it to be a measure to curb black money.
• It later went to claim that actual goal was to negate the fake currency being circulated and put a check on funding to terrorist and separatist organizations.
• Arun Jaitley recent held a press conference where he said that Demonetization’s primary aim was to expand tax net in India.
• Ex-RBI governor Raghuram Rajan, in his book “I Do, What I Do” on tenure as RBI governor as put several question marks on Demonetization and also said that Govt asked for his opinion on Demonetization in April 2016. He replied that short term economic cost of this step would outweigh the long term economic benefits.
• The figure of the increase in number of taxpayer has been seriously disputed and CBDT, MoF have different figures to quote.
• As per many reports, majority of the new taxpayers in system might not show income greater than Rs 2.5 lacs per annum, which effectively puts them out of the tax paying bracket.

My take on the Issue:

• Long term benefits of Demonetization can be leveraged only if Govt used the data of offenders and doubtful deposits effectively without creating problems for honest citizens.
• Informal economy of India is really crucial as it generates maximum employment, they are not connected to formal credit channels and aren’t documented. Government must take strong measures to provide relief to this sector.