Demonetisation actually a step in cashless economy direction. Is Finance Minister’s statement a major shift in PM Modi’s stated demonetisation objectives in view of Government’s failure to manage post demonetisation affairs?
Ministry of Finance
13 December, 2016
Transcription of the Finance Minister’s Statement made to media today
The Congress party was in power for 10 years continuously from 2004-14. There were two striking features of that regime. The First that it did not take even a single step either against corruption or against black money. The Second as far as corruption scandals were concerned, it peaked during that period. So from 2G scandal to coal block , CWG, VVIP helicopter Agusta Westland deal, each of the scandals, which is even today discussed in public space, belongs to that period. Given this scandalous record, it is not surprising that Congress party is extremely uncomfortable with anti-corruption campaign that the NDA Government led by Prime Minister Narendra Modi has launched.
A society which only deals in cash or predominantly in cash and it should be remembered that from 2004-2014, high denomination currencies increased from a mere 36 per cent to over 80 per cent. There are economic costs of dealing in cash, there are social costs of dealing in cash. These are the costs which system has to bear.
And therefore, the present NDA Government has started overhauling the system. The demonetisation drive currently on, is at a stage where high denomination has ceased to be a legal tender. It is actually a step in the direction of less cash economy. It’s our strategy that from high cash dominated economy we should become a less cash economy where the amount of paper currency comes down. Cash will still exist and there would be a greater digitisation. In fact, we see with a sense of satisfaction, a huge movement in favour of digitisation which is taking place. There are obvious advantages of this.
Notwithstanding some transient problem which people have to face, we are now rapidly completing remonetisation exercise. Everyday RBI is injecting a large amount of currency into the banking system as part of its remonetisation exercise. Significant amounts are going to be injected in next three weeks which are gradually bringing the pressure down.
As more and more new currency comes into circulation, the recirculation itself in the banking system & ATMs will make more currency available.
The advantages are,so much money which was operating as loose cash in the system, has today come into the banking system. It has to be accounted for where taxes have not been paid, which will now be recovered.
Future transaction would be substantially digital and once they are substantially digital, they would come in the tax net. Therefore, the future taxation level would be much higher than what is currently being collected. This would also enable the Government at some stage to make taxes more reasonable which will apply to both direct and indirect taxes.
The banking system will have lot more cash in it and therefore,it’s ability to support economy with low cost cash, that is cash whose capital is much lesser, would be much higher. Obviously with all these advantages, the social cost also on the system will go down. Therefore, the cash used for bribery, for counterfeit currency, for terrorism, for evading taxes itself will go down.
When this is seen along with many other reforms Government is bringing about particularly the proposed GST, the restrictions on cash spending subjected to PAN declaration, it itself is going to bring down the levels of corruption in society, it is going to bring down cash transaction in society and it’s going to bring down levels of evasion as far as taxation is concerned.
I would therefore urge my friends in Cong party, and the entire opposition, we are ready to debate this issue in Parliament. Rise above slogans and look at the positive advantages that these changes in system in the long run are going to bring to the economy as a whole. Therefore, from national perspective I would appeal to the opposition to join this campaign rather than create obstruction & fail to understand what the real purpose and the import of this campaign really is.
It has also come to the notice of the Govt that some unscrupulous people including some in the banking system and some others have been trying to subvert the system once again and accumulate large amount of cash unlawfully. Obviously, there is a breach of law in this and this is a step which hurts the economy. And therefore, all agencies are keeping an eye on this. They will investigate this matter and all those who are found indulging in these malpractices will have to pay a very heavy price for what they are doing.