Rubbishing critics, Finance Minister Arun Jaitley today said the effects of demonetization were not as adverse as was predicted and asserted that there has been a sharp jump in tax collections and economic activity including in winter crop sowing.
Ahead of expiry of the 50-day deadline for depositing the junked 500 and 1000 rupee notes on Friday, he said the remonetization process has substantially advanced, significantly without a single incident of unrest anywhere in the country. However, talking to PTI the Finance Minister refused to hazard a guess on the GDP growth for the year or the possible impact on tax proposals in the his Budget for 2017-18 on account of increased revenue collections.
Jaitley slams critics
Replying to questions on when customers can see easing of curbs on cash withdrawals, Jaitley said: “That is a decision the central bank will take in consultation with everyone.” Asked about fears expressed by critics that the note ban decision will hit the economy and the GDP growth, he said, “I think one is clear, there could have been some adverse impact for a quarter or so. It doesn’t appear to be as adverse as it was being predicted.
“But in the long term, you have to plan the economy in the long term, the changes in the system which are coming about will certainly mean more money in the banks, more money with the revenue and probably a much larger and cleaner GDP,” he said.
To a query about whether the rising revenue collections would have any impact on taxation in the coming Budget, he said, “I think you will have to wait for that.” Asked whether the government would take a conscious decision to reduce the quantity of money in circulation in the remonetizing process, the Finance Minister said: “that is a decision RBI will take and they will be certainly guided by the requirements of the market.”
“But obviously one of the intentions as far as government of India is concerned is that the paper currency should shrink and a large part of businesses should be in the alternative digital or cheque mode. Considering the very large increase in digital users that have taken place we seem to be moving in the right direction,” he said.
Jaitley highlights benefits of demonetization
Jaitley said a large part of the Rs 15.4 lakh crore of old high denomination notes in circulation on November 8 have already been replaced and the Reserve Bank of India (RBI) has a very large amount of currency available to support any liquidity need. “Already a large part of benefits of this historic move are visible. A lot more money has come into the banking system,” he said. While the ability of banks to support economic activity has increased, direct and indirect tax collections have gone up significantly.
Till December 19, net increase in income tax collections has been 14.4% and even after accounting for large refunds, the net rise in collection is 13.6%, he said. Indirect tax collections soared 26.2% between April 1 and November 30, with revenue from excise jumping 43.5%, that from service tax by 25.7% and customs by 5.6%, he said. Direct tax collection has jumped to Rs 5.57 lakh crore in April 1 to December 19 period when compared with Rs 4.87 lakh crore collection in the same period a year ago. This makes up for 65% of the Budget estimate.
Advance tax payment till third quarter has gone up by 14% as compared to a growth of 7.3% in the same period of 2015-16 fiscal. TDS has seen a jump of 15% as compared to 11.43% last year while self assessment tax, which last year showed a growth of 6.47%, has soared to 21.14%. Income tax collection has risen to Rs 2.20 lakh crore till December 19 of the current fiscal as opposed to Rs 1.82 lakh crore in the corresponding period of previous year.
On indirect tax front, revenue has jumped 26.2% till November 30 with central excise showing a surge of 43.5% and customs of 5.6% and service tax of 25.7%. “On the November 8, the Prime Minister asked for the country to support him notwithstanding several inconveniences being suffered by people during the remonetization period. We are extremely grateful to the people of India who have in very large measure supported the move,” Jaitley said.
The remonetization process, he said, has substantially advanced. “The RBI has very large amounts of currency available and it will continue to support the market to the extent that the market needs that kind of liquidity.” Stating that a very large part of currency in circulation on November 8 has already been replaced, he said banknotes will “continue to be replaced to the extent that market requires that currency.”
More 500 notes released
“More and more notes of Rs 500 are also being released through the banking and post offices and therefore we can see a lot of currency into recirculation which is enabling the banking system and the ATMs to further augment the supply,” he said. Counting the benefits the demonetization drive has yielded, Finance Minister said a lot more money has come into the banking system and its impact on taxation and revenue collection is already being seen.
“The ability of the banks (to lend) has now increased,” he said. Stating that the revenue figures itself are more significant, he said, “not withstanding what the critics have predicted in all the categories till November 30, there is a significant increase in indirect taxation. In the central indirect taxes. The increase is 26.2%.” “On the year to year basis, the November of 2016 all the three indirect taxes collection is much high,” he said, adding state governments would not see any significant change in numbers. He said agriculture was one area thought to have been impacted by demonetization but winter rabi crop sowing is higher by 6.3% than last year.
“Now, the Rabi crop sowing higher than last year, life insurance businesses have increased by 213%, international tourism has increased, air passenger traffic has increased, petroleum consumption has increased, the flow in Mutual Funds has increased by 11%,” he said. “Of course, there would be areas which would be adversely impacted but what was predicted by the critics has to have rationale with the revenue collection. Assessment can be unreal but revenue is real.
And therefore, many of these indicate that now with the critical part of the remonetization already behind us and there being significant impact in large number of these areas, it should certainly be much better in weeks and months to come than it was in last six weeks,” Jaitley said.
Asked if there a conscious attempt to reduce the currency in circulation while remonetizing, he said RBI will take that decision after assessing the requirements of the market. But obviously one of the intentions as far as government of India is concerned that the paper currency should shrink and a large part of businesses in the alternative digital or cheque mode. Considering the very large increase in digital users that have taken place, we seem to be moving in the right direction,” he said.
He acknowledged that there could have been some adverse impact for a quarter or so. “It doesn’t appear to be as adverse as it was being predicted. But in the long term, you have to plan the economy in the long term, the changes in the system which are coming about will certainly mean more money with the banks, more money with the revenue and probably a much larger and cleaner GDP,” he added