DNA Edit: Note ban gains

The Reserve Bank of India in its annual report revealed that almost 99 per cent of Rs 500 and Rs 1,000 notes that had been rendered without a legal status during demonetization has returned to its coffers. Critics of the government have lunged at this opportunity to deprecate the demonetization initiative. While some may argue that not all the flak coming the government’s way is unjustified, the current narrative does not do justice to the positive changes that have emerged from this prodigious and unprecedented exercise.

Essentially, the demonetization plan has effectively widened the tax base, and direct tax collections are up by a whopping 22 per cent. There has been a quantum jump in the enforcement actions that have followed on the basis of data collected during demonetization. Sample, for instance, that there has been a 158 per cent increase in the number of searches, 106 per cent increase in seizures, 38 per cent increase in admission of undisclosed income. In fact, the deterrent effect of the plan has been such that the admission of undisclosed income zoomed to Rs 1.54 lakh crore from Rs 11,226 lakh crore.

The fruits of the demonetization exercise will be evident in the near future as tax collection of the Central government reaches a previously untouched level. Already the government’s matrix of indirect tax payer data has been strengthened thanks to the game-changing GST reform. These two taken together will help the taxman zone in on taxation blind spots, and, consequently, improve India’s tax-to-GDP ratio that has been languishing between 15 and 17 per cent in the last decade.

Finance Minister Arun Jaitley’s argument that India is moving away from being a high-cash economy is equally relevant. Scores of economic studies vouchsafe that a digital economy is far more conducive to transparency and accountability when it comes to tax collection. Even with the pervasive reach of the internet, Indians temperamentally and habitually feel comfortable transacting in cash. The success of demonetization can also be gauged by the panic it set amongst the defaulters. Shell companies that were registered essentially for money-laundering and tax evasion purposes are closing down or are being probed by the taxman. Besides, demonetization’s narrative in the popular imagination is miles apart from its perception in the mainstream media. The initiative earned more than enough electoral capital as seen in the stunning victory that BJP Aregistered in the UP elections.