Demonetization Helps Economy and gave Rs 5 lakh crore advantage

Reported Originally By India Today

Thanks to demonetisation the Indian economy is running with Rs 5 lakh crores less than the amount of cash that would have been present in the economy had demonetisation not happened.

This is one of the key findings of a high level internal report on the benefits of demonetisation which has been prepared by top government officials.

Mail Today has exclusively been able to access this report which has been prepared as part of the internal assessments carried out to mark the third anniversary of the Modi government.

Here’s a low down of some of the major advantages that demonetisation has delivered to the economy:
  1. At the time of demonetisation, currency worth Rs 17.77 crores was in circulation in the economy. Out of this, Rs 15.44 lakh crores was in high denomination notes, which were phased out. Rs 2.33 lakh crores was in small denomination notes with a value of Rs 100 or less. The government’s internal calculation is that if currency in circulation had continued to be printed at the same rate as before demonetisation, then by May 2017, currency in circulation would have been of the value of Rs 19.25 lakh crores. According to RBI figures,at the end of April this year, the total amount of currency in circulation was Rs 14.2 lakh crores.
  2. The demonetisation advantages report of the Modi government says that with Rs 14.2 lakh crores of currency the economy is able to meet all its transactional requirements. This means that the economy now has roughly Rs 5 lakh crores of cash lesser than the amount it would have had if demonetisation had not happened. This essentially means that the amount of cash stashed away by citizens has come down. This is advantageous to the economy since the hoarding of cash delivers no value to the country’s economic growth.
  3. One of the most important benefits of demonetisation has been the sharp increase in the country’s tax base. The government’s estimate is that thanks to demonetisation, India’s net personal income tax revenue could double over the next couple of years. Some of the dividends are already visible. The number of people who have filed self assessment forms for the financial year 2016-17 grew by 23.8 per cent. The government’s calculation is that out of this 23.8 per cent, at least 10 per cent growth is thanks to demonetisation. Senior officials in the administration say that demonetisation has sent a message that those who evade tax are engaging in a form of financial terrorism and that the law is now going to come after them.
  4. 91 lakh new assesses joined the tax base in FY 2016-17. In years gone by, the increase in the number of assesses has usually been in the range of 20-25 lakh. The government’s belief is that a strong message has gone out that there’s no point any longer in hiding income. Last year, just 24 lakh individuals declared a net income of more than Rs 10 lakh. Out of this meager number, 65% were those who drew fixed salaries.
  5. Before demonetisation roughly 1 lakh new pan cards were issued every day. Now the number of new PAN cards issued every day averages between 2-3 lakhs.
  6. One of the big advantages of demonetisation has been the move to a more formal digital economy. In FY 2016-17, there were a total of 300 crore digital transactions. If the rate seen in the first few weeks of FY 2017-18 continues, then the government estimates that this year there will be more than 2500 crore digital transactions.
  7. The usage of mobile wallets like PayTM, SBI Buddy, FreeCharge is already worth more than Rs 200 crore per day. In the five months since its launch, 2 crore people have downloaded the BHIM app. The BHIM and UPI payment gateways are already averaging a daily transactional value of Rs 140 crore per day.
  8. Debit card usage figures have gone up significantly post demonetisation. In 2015-16, the total number of debit card transactions was 117 crores, which had an aggregate transactional value of Rs 1.58 crores. In 2016-17, the number of transactions went up significantly, mostly after demonetisation. In the year gone by there were 240 crore debit card transactions with a total value of Rs 3.3 lakh crore.
  9. Demonetisation has helped bring a significant amount of additional money into the formal banking system, which is apparent from the increased number of bank deposits. The government’s estimate is that the total amount of savings in the banking system has gone up by Rs 4.5 lakh crore from the pre-demonetisation baseline figure.
  10. Demonetisation has also helped ensure that the advance of a RBI rate cut is actually passed on to the consumer. Between January 2015 and October 2016, the RBI reduced interest rates by 175 basis points. However, on an average banks passed on only about 50 basis point rate cut to the consumer. After demonetisation, though, banks have already reduced the Marginal Cost of Fund Based Lending Rates (MCLR) by around 100 basis points and the government expects that the reduction will continue in the coming months.
  11. The advantage of reduced interest rates is felt most notably by the medium and small scale industries. The government’s calculation is that thousands of SMEs will cross the threshold of viability thanks to the reduction in interest rates spurred by demonetisation.
  12. Demonetisation is also giving a boost to reviving the housing sector which has been in the doldrums for the last few years. Interest rate for individual borrowers is already done to 8.2 per cent. Before demonetisation, interest rates hovered at around 9.3 per cent.
  13. The number of active contributors under the Employee Provident Fund (EPF) scheme has gone up from 3.7 crores before demonetisation to 4.5 crores by March 2017. This means that more companies have now started paying EPF to their employees.
  14. As a result of demonetisation the total amount outstanding with DisComs has substantially come down. DisComs were allowed to accept high denomination notes in the days after Demonetisation. DisComs collected more than Rs 25,000 crore during the Demonetisation period, which is Rs 4,500 crore more than what was collected in the same period of 2015.
  15. In the same way the total amount outstanding with urban local bodies under the heads of Property Tax, Professional Tax has come down in a significant way. In November 2015, India’s major urban local bodies collected Rs 1000 crores, while in November 2016, urban local bodies collected Rs 3,500 crores, which is an increase of a whopping 245 per cent.
  16. Before demonetisation, cashless payment at toll plazas of National Highways Authority of India was roughly 3 per cent of total NHAI toll collections. Cashless transactions have now gone up to 15 per cent of the total toll collected by NHAI.
  17. Cashless payment at petrol/diesel outlets before demonetisation was roughly Rs 4,500 crore. After demonetisation, this figure has jumped to Rs 12,000 crore. In percentage terms, cashless payments at petrol pumps has gone by from 9 per cent to more than 20 per cent.
  18. Before demonetisation, roughly 50 per cent of all bookings done with the Indian Railways were done online through the IRCTC website. Post demonetisation, 68 per cent of the total railway tickets have been booked online.