Demonetisation to have long-term benefits; disruption temporary: Finance Minister Arun Jaitley
Conceding that demonetisation may create a disruption in short-term, Finance Minister Arun Jaitley on Friday said the impact on the economy may be seen 'for a quarter or so' but relative advantages are going to be much more in the long run.
New Delhi: Conceding that demonetisation may create a disruption in short-term, Finance Minister Arun Jaitley on Friday said the impact on the economy may be seen "for a quarter or so" but relative advantages are going to be much more in the long run.
"When you switch over, it creates disruption. I don't see disruption lasting too long. You may see the impact for a quarter or so. Then when you look at next 12-15 quarters, it's certainly going to benefit," he said at the HT Leadership Summit in New Delhi.
Citing a few economic trends post demonetisation, the Minister said rabi sowing this season has been higher than last year, while auto sales were a mixed bag.
"Of course, you will have some disruption created because of the switchover, in the long run, advantages are going to be huge as far as the relative cost of disruption is concerned,"
He further said the Indian economy has been witnessing a high growth in the past two years and retained the tag of the fastest growing large economy in the world. This year too, India would probably remain the fastest growing economy, the Finance Minister added.
On GST, Jaitley said, its implementation cannot be delayed beyond 17 September next year due to constitutional compulsion.
"First of all, the constitution does not permit a delay in GST implementation. The notified GST on 16 September and the constitutional amendment itself says that the current indirect tax system can continue for one year, after which the GST has to come," he said.
"So, if on 16 September, 2017, there is no GST, then there is no taxation in the country. So, you have a constitutional compulsion to have a Goods and Services Tax in place before September 16; otherwise, the country doesn't run, and the tax is absolutely essential," the FM added.
The government intends to implement the GST from 1 April, 2017, Jaitley said.
Jaitley further said that low-cost deposit due to demonetisation will increase and therefore the ability of banks to use that money suddenly improves for reasonable cost lending in various sectors like social, infrastructure, industry and trade.
"So, that boosts the economy. There could be another limb, that money which was not deposited, then goes to the credit of the RBI. And that money can be constructively used.
And of course the third limb, the immediate advantage that you will have of this money, that are even being deposited and which are liable for exemplary taxation," he said. And the fourth limb, he said, base of taxation for
And the fourth limb, he said, the base of taxation for direct and indirect would expand. Noting that security printing of currency is a fairly complicated and time-consuming exercise, the Finance Minister said, replacement of large volumes of currency required calibrated move by the RBI otherwise it would lead to malpractices.
"If you suddenly release entire thing in one go then there would be market malpractices and therefore remonetisation process is not instantaneous but it would be spread over a couple of weeks," he said.
Acknowledging that long queues were factored in during the decision-making process of demonetisation, the finance minister appreciated that people have cooperated immensely and
those standing in queues were disciplined.
"The country, by and large, has welcomed this decision," he said, adding there will be a very significant amount of currency that will be released into the market by 30 December.
"One of the significant advantages of this would be you won't have the same level of currency which existed on 8 November... the level of paper currency will shrink, you should not expect the same level of paper currency coming back and it would be lesser. The balance would be replaced by other modes credit, debit cards, e-wallets," the FM said.
Emphasising that people are already moving towards digital transactions, he said out of 80 crore credit and debit cards, 45 crore cards are in active circulation.
Besides, there are 23 crore e-wallets that started less than one-and-a-half years ago, he added.
"Both in politics and media, you find difficult to digest these figures but the country is changing much faster than what we think," Jaitley said.
Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.
The Rs 2,000 banknotes were introduced along with new Rs 500 currency following the withdrawal of old Rs 500 and Rs 1,000 notes from 9 November, 2016.
There were Rs 16.41 lakh crore worth currency notes in circulation as on March 31 last year, which has come down to Rs 11.73 lakh crore as on March 3, 2017, Minister of State for Finance Arjun Ram Meghwal said in a written reply in the Lok Sabha.
Prime Minister Narendra Modi's decision to demonetise Rs 500 and Rs 1,000 notes is striking deep not just into the black economy of India but also day-to-day economics.