By Gopal
Krishna Agarwal,
National
Spokesperson on economic Affairs, BJP
The
announcements on demonetization have created a disruption in the country’s economic eco-system. There is a Debate
whether it will help us curb corruption and eliminate Black money. What will be
its impact on the economy in the short medium and long term particularly in the
important segments such as the rural and agriculture sectors micro small and medium
enterprises and the unorganized sector such as small traders shop owners and
daily wagers? But demonetization has to be seen in a larger perspective.
Bringing economic growth and curbing corruption and eliminating black money were the two important mandates on which our government came to power. Some important aspects have to be kept in mind. A recent world bank report stated that 20 percent of black wealth of our country is stashed across all assets class- real estate gold and currency etc. The Global Wealth report 2016 shows that 1 percent of the population has over 58 percent of the country’s wealth. In this India ranks second after Russia. It also states that 97 percent has wealth of less than $ 10000- approximately Rs 7,00,000. This points out that over the years a lot of our wealth was accumulated in the form of black money in the hands of a select few. A large population was deprived of benefits of growth. Though the GDP Grew fast employment could not keep pace with it leading to skewed growth in the economy.
This has to be
corrected at all cost. Objectives and effects of demonetization cannot not be
analysed in isolation. It is a part of the series of measures undertaken by the
Narendra Modi Government. The very next day Shri Modi came to power a Special
Investigation Team was setup to suggest steps to curb corruption and eliminate
black money.
The government
has money objectives in mind from demonetization. First , due to huge currency
in circulation the economy had inflationary pressure and housing was out of the common man’s reach.
Demonetisation
will reduce prices in real estate and bring down inflation. Second It will
bring resources to the government for social benefits schemes for the poor and
low income groups and infrastructure development. Third, We will be able to
move towards a low interest rate economy. It will help create infrastructure
for smoother implementation of GST which will help us reduce indirect taxes. It
will also curb terrorist and criminal activities. Fake currencies will be
eliminated. As the cost of online payments and mobile banking are cheaper compared
to physical transaction, we have to benefit of lower cost of transactions. And
finally with audit trail and transparency, There will be higher tax compliance
visible from the third quarter tax collection and 15 percent increase in direct
tax collection. The government is aware of the liquidity crunch but this will
be sorted out by December 30. It will Bring liquidity back into the system but
at a reduced level of about 9 percent of GDP.
Objectives and effects of demonetization cannot be analyses in isolation. It is a part of the measures undertaken by the Modi Government
The government knows that a squeeze in liquidity can negatively affect economy activities. Therefore, It has a roadmap to revitalize GDP Growth. The Increased current account and savings accounts deposits of banks will reduce their cost of funds and increased availability of funds. The Government will focus on credit off take through startup, mudra loans to medium and small and rural sectors of the economy at the reduced rate of interest. Real estate prices have started falling and with the fall in the rate of EMI housing will come within the reach of the common man and will boost the construction industry. If the black money in circulation does not come to RBI through the banks, It will reduce the liability of the central bank bringing several benefits to the economy, but this will be achieved only when black money is not recycled therefore temporary restrictions on withdrawal. With higher tax compliances the government will be able to create a premium on honesty and move towards lower rates of taxation, as already hinted by the Finance Ministers.
