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PM Modi's note ban move gave economy Rs 5-trillion advantage

India Today logo India Today 26-05-2017

Prime Minister Narendra Modi's demonetisation move has given the economy a Rs 5 lakh-crore advantage, a high-level internal assessment report of the government on the drive has found.

India's Prime Minister Narendra Modi gestures as he gives a speech. © Yuya Shino/Reuters India's Prime Minister Narendra Modi gestures as he gives a speech.

MAIL TODAY is in possession of the findings which point out that at the time of the surprise cash crackdown announced by the PM on November 8 last year, currency worth Rs 17.77 lakh crore was in circulation in the economy. 

By May 2017, the banknotes in use would have been of the value of Rs 19.25 lakh crore. However, according to RBI figures, at the end of April this year, the total amount of currency in circulation was Rs 14.2 lakh crore. 

This means that the economy now has roughly Rs 5 lakh crore cash less than the amount it would have had if note ban had not happened. This also indicates that the amount of cash stashed away by citizens has come down.

The situation is advantageous to the country since hoarding of cash delivers no value to India's economic growth. The other key benefits include widening of the tax base, boost to digital economy, growing bank deposits, burgeoning EPFs and strengthening of the teetering housing sector. The decision to abolish 500 and 1,000 rupee notes disrupted the daily lives of hundreds of millions of citizens as banks struggled to swiftly expand the circulation of new bills. 

The PM had said the demonetisation action was needed to fight corruption and fraud and cut off financing for attacks by terrorists who target India. The government report says that with Rs 14.2 lakh crore of currency the economy is able to meet all its transactional requirements. 

It also estimates that because of the note ban, India's net personal income tax revenue could double over the next couple of years. Some of the dividends are already visible. The number of people who have filed self assessment forms for the financial year 2016-17 grew by 23.8%. The government's calculation is that out of this 23.8%, at least 10% growth is due to demonetisation.

Senior officials in the administration say the crackdown has sent a message that those who evade tax are engaging in a form of financial terrorism and the law is now going to come after them. Ninety-one lakh new assesses joined the tax base in the last fiscal year. Previously, the increase in the number of assesses was usually in the range of 20-25 lakhs.

The study also found that before demonetisation close to one lakh new PAN cards were issued every day. Now the number of new PAN cards issued daily averages between 2-3 lakh. One of the big advantages of demonetisation has been the move to a more formal digital economy, the report shows. The financial year 2016-17 saw a total of 300 crore digital transactions. If the rate seen in the first few weeks of FY 2017-18 continues, then the government estimates that there will be more than 2,500 crore digital transactions this fiscal.

The usage of mobile wallets like PayTM, SBI Buddy, FreeCharge, etc, is already worth more than Rs 200 crore per day. In the five months since its launch, two crore people have downloaded the BHIM app.

The BHIM and UPI payment gateways are already averaging a daily transactional value of Rs 140 crore per day, the study has found. Debit card usage too has taken off significantly post note ban. In 2015-16, the total number of debit card transactions was 117 crores, which had an aggregate value of Rs 1.58 lakh crore. In 2016-17, there were 240 crore debit card transactions with a total value of Rs 3.3 lakh crore.

Demonetisation has also 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 Rs 4.5 lakh crore from the pre-demonetisation baseline figure.

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