By Gopal Krishna Agarwal,
The recent announcements on demonetization have a created a new dimension in the economic ecosystem of the country. There is a debate in the country, whether it will have us in curbing corruption and eliminating black money in circulation. What will be its impact on the economy in the short medium and long term; particularly in the important segments like rural and agriculture sector, micro small and medium enterprises and unorganized sector like small traders shop owners & daily wagers etc. But Bing Bang reforms require this we are moving towards new revolution of Digital Economy. Demonetization has to be seen in a larger prospective.
Bringing economic growth to the country and curbing corruption and elimination of black money were the two important mandates on which our government came to power. Some of the important aspects that have to be kept in mind are.
According to the World Bank report 20% of wealth is stashed across all assets class i.e. Real estate gold and currency etc. Global Wealth report 2016 shows that 1 % of population has more than 58% of the wealth of the country. In the concentration of wealth India ranks 2nd after Russia across globe.
97% of our population is having wealth of less than $ 10000 i.e. approximately Rs 700000. Cash currency ratio to GDP of 12% in India is very high compared to international standards. Budgetary resources of the government are very limited planned expenditure of approximately Rs 5.5 lakh crore is not enough for the government to undertake infrastructure developments and meet social security requirements.
Every citizen of the country is paying taxes in the form of indirect taxes but if it is properly accounted for it is not reaching government revenue coffers proper recording of transaction in system is necessary.
Demonetization cannot be analyzed in isolation. It is a part of the series of measures under taken by Shri Narendra Modi’s government since it inception keeping in mind the above ecosystem. The very next day Shri Modi came to power a special investigation team (SIT) was set up to suggest steps to curb corruption from the country. Starting that day several steps have been taken by the government to achieve these objectives.
1. Foreign illegal assets declaration scheme.
2. Renegotiation of bi lateral treaties with Mauritius, Cyprus and Singapore where most of the hawala transaction were taking place.
3. Treaty with America for sharing of financial information under FATCA.
4. Initiatives with OECD and G20 countries for information exchange.
5. Income disclosure Scheme (IDS).
6. Passing of Benami Properties Act.
7. Amendment to prevention of corruption Act and Placing of Whistle blower protection Act in the current session of parliament.
8. Now Pradhan Mantri Garib Kalyan yojana has been announced for penalizing those who deposit black money in the Banking channels.
9. In last two and a half years about 92 senior officials have been penalized for corruption which is much more than such as action in the past.
Demonetization is part of the larger plan of eliminating black money and fight corruption. It is the part of the whole process to create an ecosystem of equal and transparent opportunities for economic growth to the common men in all segments of the society across all segments of the society across all geographical areas.
Demonetization is part of the larger plan of eliminating black money and fight corruption. It is the part of the whole process to create an ecosystem of equal and transparent opportunities for economic growth to the common men in all segments of the society across all segments of the society across all geographical areas.
Benefits of Demonetization
- Due to huge currency in circulation economy was having inflationary pressure and value of housing etc. was getting out of common man’s hand. Demonetization will reduce prices in real estate and bring down inflation further.
2. Bring resources to the government for social benefits schemes for the poor and low income groups and infrastructure development in particular in the rural sector.
3. Helping us to move towards low interest rate economy with loans for housing sector poor and rural sector of society at lower rates.
- Create infrastructure for smooth implement of GST, which in turn will help us reducing indirect taxes.
2. Curbing terrorist activities and other criminal activities like Maoist insurgency and extortions in north eastern area etc.
3. Removal of fake currencies in circulation.
4. Lower cost of transaction (cost of online payments and mobile banking are much cheaper).
5. Many awareness programs and incentives by the government on online payments.
6. Higher tax compliance. Third quarter tax collection reports shows. 26% increase in indirect tax collection 15% increase in direct tax collections.
26% increase in indirect tax collection, 15% increase in direct tax collection.
The government is well aware of the liquidity crunch, but this will be sorted out by 30th December. We are asking people to move toward less cash economy through online payments and mobile banking but we will do this through creating awareness and not make it compulsory. Government will bring liquidity back into the system, but with reduction to about 8 to 9% of GDP.
The Government is well aware that, there is a chance that these squeezes in liquidity can affect the economic activities in the country.
The government has a roadmap to revitalize the Growth of GDP.
1. The current account and savings accounts deposits (CASA) of banks will increase. This will reduce their cost of funds and will also result in increased availability of funds.
2. Focus on credit off take through startup, standup mudra loans to medium and small sector and rural sectors of economy at reduced rate of interest.
3. Real estate price to fall further and with fall in rate of EMI, Housing will come with in the reach of the common man and will boast construction industry.
4. With more tax compliance Government can move towards lower of rates of taxation, and create premium on honesty.
5. With the black money in circulation not coming to the banking channels, can bring several benefits to the economy. But all this will be achieved only when black money is not recycled.
6. Through increased tax collection and enhanced resources Government will go for huge capital investments and social sectors spending to improve quality of life of the common men and catalyze growth.
7. Implementation of GST (which will lead to low indirect taxation) requires right ecosystem, the government is creating an atmosphere so that transactions are recorded properly and transparently.
8. With supply of black money being checked, Government will go for electoral reforms for curbing use of black money.