New Delhi: In a blog post penned on the second anniversary of demonetisation, Finance Minister Arun Jaitley said that the real purpose of demonetisation was to shake the system, not confiscate cash but to bring it to the formal economy and make the holders pay tax.
“Confiscation of currency was not an objective of demonetisation. Getting it into the formal economy and making the holders pay tax was the broader objective. The system required to be shaken in order to make India move from cash to digital transactions,” Jaitley said.
Demonetisation improved tax collection
Extolling the various steps taken by the Bharatiya Janata Party (BJP) regime to fight the black economy, Jaitley said that demonetisation resulted in increasing the tax base and a higher tax collection (both direct and indirect) for the government, thereby improving its fiscal health.
“The impact of demonetisation has been felt on collection of personal income tax. Its collections were higher in Financial Year 2018-19 (till 31-10-2018) compared to the previous year by 20.2 percent. Even in the corporate tax the collections are 19.5 percent higher. From two years prior to demonetisation, direct tax collections have increased 6.6 percent and 9 percent respectively. In the next two years, post demonetisation the increase by 14.6 percent (part of the year before impact of demonetisation in 2016-17) and an increase of 18 percent in the year 2017-18,” Jaitley wrote.
Impact on digital transaction
Speaking about the impact on government’s digital transaction initiative UPI, Jaitley said that it saw a significant jump post demonetisation with transactions growing from Rs 0.5 billion in October 2016 to Rs 598 billion in September 2018. The value of BHIM transactions also went up significantly post demonetisation, thereby giving a fillip to the government’s efforts to expand the digital payment space.
“The Unified Payment Interface (UPI) was launched in 2016 involving real-time payments between two sets of mobile holders. Its transactions have grown from Rs 0.5 billion in October 2016 to Rs 598 billion in September 2018,” Jaitley said.
“It (BHIM) is currently used by 1.25 Crore people. The value of BHIM transactions has gone up from Rs 0.02 billion in September 2016 to Rs 70.6 billion in September 2018. The share of BHIM transactions in overall UPI transactions is at about 48 percent in June 2017,” he added.
Jaitley said that large deposits of cash in the banks improved their lending capacity and a lot of this amount was diverted to mutual funds for further investments.