New Delhi: Prime Minister Narendra Modi has created a "new normal" of white transactions with crackdown on black money, Finance Minister Arun Jaitley said today, asserting that demonetisation will lead to a jump in private investment and more public spending on welfare measures.
Addressing BJP parliamentary party over the fallout of the decision, he took a dig at Rahul Gandhi saying on the one hand the Congress leader says the demonetisation decision was selectively leaked to BJP top brass and on the other he claims "that even Finance Minister, that means I, was also not aware".
Speaking at length, Jaitley explained all aspects of the move and said, "Demonetisation has direct relation with poor, with poverty and with poverty alleviation" and said once the replacement of currency reaches a reasonable level, the restrictions will be eased.
Explaining the likely positive outcomes of this move, Jaitley said the country annually borrows Rs 4-5 lakh crore and after this move and these funds can be used for public spending for development of rural areas and uplift of poor. About Rs 8 lakh crore will be collected from income tax this year and Rs 8.5 lakh crore from indirect tax but despite that another Rs 4-5 lakh crore is required to bear expenses for running the country, he said.
"..so if the honest tax paying system establishes in the country...then do we need to borrow money...and in the case these borrowings of about Rs 4-5 lakh crore annually can be utilised in rural areas for poverty alleviation and other similar measures," Jaitley added.
Terming the decision as historic, he said that Modi with his courageous step has created a new normal of white transactions.
"...what was normal from last 70 years that this much in cash and this much in cheque... but now Prime Minister has created a new normal," he said.
"Today every honest citizen feels that a premium has been given for his honesty. In long term this landmark step will increase the size of official economy and reduce the shadow economy," he said.
Giving rationale behind this move, the Finance Minister said in developed countries currency is normally 4 percent of GDP but in India it is 12 percent of the GDP.
Therefore, most trade happens in cash and is out of banking system. As a result black money, fake currency, and non-compliance of tax are attached with it, he added.
"Today you see lakh of crores of rupees which was in cash has come into banking system. This is low cost money. Now banks will have capacities to provide more loans for infrastructure development, agriculture and private sector... banks have also started reducing interest rates," Jaitley
The cessation of legal tenders Rs 500 and 1000 is followed by remonetisation so that alternative currency should reach people.
"Once this remonetisation reaches reasonable level, we will take back all restrictions but till then there will be a difficulty for some days," Jaitley said.