Facts on Demonetization and Road Map Ahead
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.
Re
negotiation 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 yojna has been annouched for penalizing those who
deposite 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
1. 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.
1. 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.
