Demonetisation has helped the Indian economy in a number of ways, including reduced corruption and higher taxes, said Ashok Goel, a professional CA and SpokesPerson, BJP, Delhi State, in an exclusive interview with SME Times.

Excerpts of the interview

Do you believe demonetisation succeeded in reducing corruption, tax evasion and black money?

Ashok Goel: Demonetisation has strengthened India’s institutional framework by reducing corruption, tax evasion and black money. The Reserve Bank of India in its annual report had said that 99 per cent or INR 15.28 lakh crore, or 99 percent of the currency invalidated. Only INR 16,000 crore of demonetised currency was not deposited with banks, according to data in the Reserve Bank of India's annual report.

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.

Demonetisation had also other benefits like reducing the cash dependency in our economy and increasing digitisation. The total cash volume in the economy has reduced by 17 per cent and digital transactions were on the up. One of the big advantages of demonetisation has been the move to a more formal digital economy. Debit card usage figures have gone up significantly post demonetisation.

After demonetisation, India has moved on to a much cleaner, transparent and honest financial system.

How can we measure the effects of demonetisation to reduce corruption, tax evasion and black money? For an example, tax numbers, amount of money that has been converted into new currency, etc.

Ashok Goel: 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 due to demonetisation. 

Cash seizure by Income Tax Department has more than doubled in 2016-17 when compared to 2015-16; during search and seizure by the Department INR 15,497 crore of undisclosed income has been admitted which is 38% higher than the undisclosed amount admitted during 2015-16; and undisclosed income detected during surveys in 2016-17 is INR 13,716 crore which is 41% higher than the detection made in 2015-16. 

Undisclosed income admitted and undisclosed income detected taken together amounts to INR 29,213 crore; which is close to 18% of the amount involved in suspicious transactions.

56 lakh new individual tax payers filed their returns till August 5, 2017 which was the last date for filing return for this category; last year this number was about 22 lakhs. Self-Assessment Tax (voluntary payment by tax payers at the time of filing return) paid by non-corporate tax payers increasing by 34.25% during April 1 to August 5 in 2017 when compared to the same period in 2016.

With increase in tax base and bringing back undisclosed income into the formal economy, the amount of Advance Tax paid by non-corporate tax payers during the current year has also increased by about 42% during 1st April to 5th August.

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 INR 4.5 lakh crore from the pre-demonetisation baseline figure.

The Income Tax department has identified 18 lakh persons whose cash transactions are not in line with their tax profile. What kind of actions will they face?

IT department has sent emails and phone text messages to these accountant holders to seek their explanation about the source of funds and a response. The response of taxpayer will be assessed against available information. In case explanation of source of cash is found justified, the verification will be closed without any need to visit Income Tax Office. In absence of a response or any unjustified response, they will receive a notice from the tax department or further action.

How do you evaluate the follow up measures taken after demonetisation? What else could be done?

Ashok Goel: The government has followed up demonetisation with structural reforms. Some steps like Benami Property Act, mandatory use of PAN card for large cash purchase, Income Declaration Scheme etc. have already been implemented. Implementation of GST has already created a unified common national market, increased ease of business, reduced tax evasion, simplified tax structure, and improved investment and efficiency of logistics across the nation. Reserve Bank of India has begun the printing of INR 200 notes to ease operations, smoothen consumer transaction and eradicate black money and corruption.

What was the impact of demonetisation on the use of digital transactions? 

Ashok Goel: 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 months of FY 2017-18 continues, then the government estimates that this year there will be more than 2500 crore digital transactions. 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 INR 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 INR 3.3 lakh crore.

Reducing the use of cash can reduce corruption, black money and tax evasion? If yes, how? If no, why?

All transactions above a certain amount cannot be made in cash now. Instead, they must be made using debit cards, credit cards, checks, or bank transfers. This means that any large transaction can be traced. Further, large cash withdrawals or deposits should be disallowed. This means that one cannot draw large amounts of cash to make a dodgy transaction. And further, and if someone accepts a large cash bribe, it can't be deposited in a bank or used anywhere. 

Another benefit of cashless economy is that it is easier to track the black money and illegal transactions because if cash is used directly for doing transactions than it is not easy to track the transactions as the money does not come into the banking system however in case of digital transactions it is easy to track the transaction as all records are there with the banks which result in more transparent transactions which in turn leads to fall in corruption in the economy of the country.

How demonetisation affected growth? Has the Indian economy already recovered from the initial shock?

Ashok Goel: India remained the fastest growing major economy in the world last quarter, with growth buoyed by an improved performance in manufacturing and services

The demonetization drive barely impacted the economic momentum in the second half of FY`17. Most of the high-frequency indicators showed only a marginal slowdown and were quick to recover.

Factory and services activity expanded for most of the first quarter of 2017, rising to a five-month high in March, indicating the effects from demonetisation were short lived. 

This acceleration in economic growth was partly driven by favourable domestic factors, including a significant improvement in the transmission of past central bank policy rate reductions into bank’s lending rates, encouraging investment.

In addition, infrastructure spending is expected to support growth, as will higher agricultural output if the monsoon rains prove favourable.

The economy is also benefited from the introduction of a nationwide goods and sales tax (GST), eliminating multiple state sales taxes, making it far easier to do business in India.

Do you think a measure like this could succeed in reducing corruption in other countries?

Ashok Goel: The success and failure of measures like demonetisation depends on the economic conditions and preparation done by the government of the country. Countries like Europian Union, Australia, Zimbabwe have implemented demonetisation successfully whereas countries like Soviet Union, Ghana, Nigeria, Myanmar and Zaire has failed completely.

Our government has taken all the precautions and was fully prepared with further measures and structural reforms to support demonetisation.