Launching a strong defence of demonetisation, Finance Minister Arun Jaitley on Thursday said the real purpose of the exercise was not confiscation of cash but bring it in the formal economy and increase the tax base.
Financial inclusion was another important step to ensure that even weaker sections became part of the formal economy. Jan Dhan Accounts have resulted in most people being connected to the banking system. The Aadhaar Law has ensured that Direct Benefit Transfer of Government support system reached directly into the bank accounts.
“India was a cash dominated economy. Cash involves anonymity in transactions. It bypasses the banking system and enables its possessors to evade tax. Demonetisation compelled holders of cash to deposit the same in the banks,” he wrote in the Facebook post titled ‘Impact of Demonetisation’.
“The enormity of cash deposited and identified with the owner resulted in suspected 17.42 lakh account holders from whom the response has been received online through non-invasive method. The violators faced punitive actions.”
Higher deposits in the banking system helped improve lending capacity of banks and helped in financialisation of savings, he said. “A lot of this money was diverted to the mutual funds for further investments. It became a part of the formal system,” he said.
Jaitley also said that despite lowering of both direct and indirect taxes, collections had gone up. “Despite an annual income tax relief of Rs 97,000 crore given to the smaller taxpayers and a Rs 80,000 crore relief given to GST assessees, tax collections have gone up. GST rates on 334 commodities which were paying an effective 31% tax pre-GST have witnessed a tax reduction,” he wrote.
Higher tax collections have helped to mobilize more resources for spending on infrastructure creation, social sector and rural India, he said.
“How else could we visualise villages being connected by road, electricity in every home, 92% coverage for rural sanitation, a successful Awas Yojana, a cooking gas connection in 8 crore poor homes. Ten crore families are covered under Ayushman Bharat, Rs 1,62,000 crore is being spent on subsidised food, 50% increase in MSP for farmers and a successful crop insurance scheme. It is the formalisation of the economy, which has led to 13 crore entrepreneurs securing Mudra loans. The Seventh Pay Commission was implemented within weeks and the OROP was finally implemented,” he said.