Two months after the government’s sudden decision to scrap Rs 500 and Rs 1,000 notes, Finance Minister Arun Jaitley on Sunday said that its impact on the economy would be “transient” but in the medium and long run, the GDP would be “bigger and cleaner” and it will also help lower interest rates.
Taking a dig at the Congress Party, he said that it has sided with a black money friendly status quo, while the Prime Minister Narendra Modi is thinking of the next generation and creating a new “normal” by taking on tax evaders and cleaning the political funding systems through demonetisation.
Noting that demonetisation was a step in combating tax evasion, the Finance Minister said, “The Prime Minister was thinking of the next generation while Rahul Gandhi was only looking at how to disrupt the next session of Parliament,” he said, and added that he was cleaning the political funding systems.
Prime Minister Narendra Modi had on November 8 announced an almost immediate withdrawal of high value notes, which constituted nearly 86 per cent of the currency in circulation. Since then, economists have warned that the cash squeeze would hurt economic activity. On January 6, first advance estimates released by the Central Statistics Office pegged GDP growth at a three year low of 7.1 per cent in 2016-17.
In a Facebook post “Demonetisation – A look back at the last two months”, Jaitley said that though there was no social unrest while implementing such a major decision, the Opposition disrupted a full Session of Parliament.
“Their protests have been ineffective. Their exaggerated claims on the disruption of the economy have proved wrong. It is a tragedy that a national party like the Congress decided to adopt a political position, opposing technology, change and reforms,” he said.
The Finance Minister further said that tax evasion has till now was considered neither unethical nor immoral. “It was just a way of life. Several governments have allowed this ‘normal’ to continue even though this compromised with larger public interest. The Prime Minister’s decision is intended to create a new ‘normal’,” he stressed.
However, Jaitley expressed confidence that “the period of pain and inconveniences is getting over”. “Economic activity is being restored. The banks today have a lot more money available in order to lend for growth. Since this money constitutes low cost deposits with the banks, it is bound to bring down the rate of interest,” he said.
Further, lakhs of currency that was floating in the market as “lose currency” has now lost its anonymity and has now entered the banking system. “Its owners, after being taxed, are entitled to put it to more effective uses,” he stressed.
While conceding that demonetisation has been “disruptive”, he said, “All reforms are disruptive. They change the retrograde status quo. The demonetisation puts a premium on honesty and penalises dishonest conduct.”
Jaitley also pointed out that India has been a hugely non-compliant society in terms of both direct and indirect taxes, due to which expenditure for poverty eradication, national security and economic development has had to be compromised.
Substantiating his claims, he noted that in 2015-16, 3.7 crore assesses of the total population of over 125 crores, filed income tax returns. Out of these, 99 lakhs declared income below Rs 2.5 lakh and paid no taxes and only 24 lakhs declared income above Rs 10 lakh.