Arun Jaitley Says Demonetization And GST To Curb Cash-Based Economy In India

Indian Finance minister Arun Jaitley stated that cash-based transactions will come down in the country due to measures like the demonetization drive and rollout of GST in the last 10 months.

Addressing a group of policymakers and economists gathered for the Delhi Economics Conclave, Jaitley said that the tough measures were essential as a large of amount transactions were occurring outside the formal system, showing a lack of compliance.

He also pointed out that there was widespread acceptance of the practice as the norm.

The Finance minister also highlighted the fact that there was only a marginal impact from the measures announced yearly via the Finance Bill and therefore it had become important to take some hard-hitting decisions.

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In a statement, Jaitley said

Steps had to be taken in order to make a very significant impact . Net impact of the demonetization exercise coupled with the GST exercise, which is going to make generation of cash a lot more difficult, will certainly lead to greater compliance, greater digitisation. And the first signs of greater digitisation, expansion of the tax base of direct and indirect taxes is already visible.

He also noted that if the decisions were evaluated holistically along with their long-term impact, the decisions would also demonstrate an ethical rationale. Jaitley called the demonetization drive as a penal action against those engaging in black money-related activities.

The government demonetized currency notes worth Rs. 500 and Rs. 1000 rupee in early November, which removed old currencies worth Rs 15 lakh crore from the economy in one stroke. The surprise move was aimed at eliminating black money from the economy.

Mentioning the wide use of shell companies to transfer black money, Jaitley said that the demonetization drive had helped in the detection of black money and the new benami law would further aid in deterring the practice.

The landmark Goods and Services Tax (GST) was rolled out on July 1 and is the biggest taxation reform since Independence. It is expected that the new regime will curb tax evasion and boost GDP growth.

Since then the administration has been introducing several measure to encourage digital transactions. Jaitley also touched upon the controversial issue of transparency in political funding. He said that since Independence politics was being funded by invisible money and there has been no progress in checking it. The finance minister believes that these new measures are a step in the right direction.

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