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EconomyDemonetisation relook throws up big contribution to Indian economy few critics appreciate

Demonetisation relook throws up big contribution to Indian economy few critics appreciate

While demonetisation saw several critics and even many fans of the measure in 2016 have turned critical of it now, ever new benefits of the disruptive measure announced by Prime Minister Narendra Modi continue to surface. Ashima Goyal, a member of the Monetary Policy Committee (MPC), one of the most reliable economic analytical bodies in the country, said that demonetisation had contributed to the rise in tax collections. She said that this would help the nation move towards the ideal position where low taxes are levied on a large base.

On 8 November 2016, Prime Minister Modi had announced the demonetisation of old Rs 1,000 and Rs 500 banknotes and one of the key objectives of the drastic decision was to curb black money flows and promote digital payments.

Observing that demonetisation had short-term costs but some long-term benefits, Goyal said it enhanced digitisation and formalisation in the and reduced tax evasion, although all this has further to go.

Goyal said, "It contributed to the buoyancy in taxes the country is benefitting from today. This helps us move towards the ideal of low tax rates on a large base."

On 9 October, the gross direct tax collection for corporate and individual earnings jumped almost 24% in the current fiscal year starting 1 April. While the gross collection of taxes on corporate earnings rose by 16.74% between 1 April and 8 October, the personal income tax collection rose by 32.3% during the same period.

GST collections remained above Rs 1.40 lakh crore for the seventh month in a row at Rs 1.47 lakh crore in September, a 26% increase over last year, reflecting buoyancy in tax collection.

However, earlier this month, former INC president Rahul Gandhi said that the BJP's policies of demonetisation, GST and farm laws were weapons aimed at India's poor and small businessmen.

Replying to a question on Central Bank Digital Currency (CBDC), Goyal said the objectives of the CBDC were to reduce the use of cash, and provide additional functions to the existing payment system rather than replace it.

"CBDC can certainly meet new needs in the digital age, reach remote areas and enhance financial inclusion, and save costs since is expensive and cumbersome," she noted.

Recently, the said it would soon begin the pilot of the e-rupee for specific use cases with a view to bolstering India's digital economy, making payment systems more efficient and checking money laundering.

In a concept note on Central Bank Digital Currency, the said CBDC is aimed to complement, rather than replace, current forms of money and is envisaged to provide an additional payment avenue to users, not to replace the existing payment systems.

CBDC is a digital form of currency notes issued by a central bank. While most central banks across the globe are exploring the issuance of CBDC, the key motivations for its issuance are specific to each country's unique requirements.

To a question on India's widening trade deficit, Goyal said multiple policy levers are available to reduce the deficit, among shorter-term measures are exchange rate depreciation and reducing aggregate demand. She says more emphasis should be on longer-term sustainability-aiding measures such as reducing oil intensity as well as dependence on energy imports and encouraging exports.

Goyal suggested that the best export incentives are increasing the competitiveness of the Indian industry by lowering the costs and difficulties of doing business here.

India's trade deficit widened to $ 26.72 billion in September, while exports contracted by 3.52% to US 32.62 billion.

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Anoop Verma
Anoop Verma
Technologist

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