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Less cash in economy, digitisation, expanding tax base and fighting black money: FM defends demonetisation after RBI report

Finance Minister Arun Jaitley defended the demonetisation drive saying the primary objective of the move was never "confiscation of money".

Written by: India TV Business Desk, New Delhi [ Updated: August 30, 2017 23:59 IST ]
Image Source : PTI Finance Minister Arun Jaitley defends demonetisation after RBI report

With the Reserve Bank of India on Wednesday stating that 99 per cent of demonetised currency, or Rs 15.28 lakh crore of Rs 15.44 lakh crore, has returned to the banking system, the government today defended the notes ban drive saying the primary objective of the move was never "confiscation of money" but the digitisation of the Indian economy and expanding the tax base, among others. 

“The objective of note ban was to bring down cash in the economy, bring digitization, expand tax base, and fight black money,” the finance minister said at a press conference following the RBI’s annual report. 

"This was also one of the principal objects as far as demonetisation was concerned. And I think there is far greater evidence now that that has started moving in the right direction," Jaitley said. “The note ban was not an exercise to confiscate money."

"We intended to give a blow to black money and... expand the tax base of the country. It is obvious that post demonetisation, the direct tax base has already started expanding substantially," he said. 

"Objective of demonetisation was that India is predominantly high cash economy therefore that scenario requires to be significantly altered," he said.

The RBI today said in its Annual Report for 2016-17 that Rs 15.28 lakh crore of the junked currency had come back into the banking system, leaving only Rs 16,050 crore out.

The disclosure has given the Opposition the ammo to target the government over efficacy of the unprecedented move which Prime Minister had said was aimed at curbing black money and corruption.

Jaitley, however, said that people with inadequate understanding of how to tackle black money linked note ban with money returned to system. The minister said that as 99 per cent scrapped notes have returned to the system, the money has now been identified with its owner.

“People with inadequate understanding of how to tackle black money linked note ban with money returned to system,” said Jaitley

His comments came in an apparent reference to the attack by former Finance Minister P Chidambaram earlier today. Using the data provided by the RBI, Chidambaram said, "RBI 'gained' Rs 16000 crore, but 'lost' Rs 21000 crore in printing new notes! The economists deserve Nobel Prize." 

"Rs 16,000 cr out of demonetised notes of Rs 15,44,000 cr did not come back to RBI. That is 1 per cent. Shame on RBI which 'recommended' demonetisation," he tweeted. Chidambaram also wondered if demonetisation was "a scheme designed to convert black money into white?".

Jaitley said “deposits in banks don’t legitimise” black money. “Money has now been identified with its owner.”

He said the post-demonetisation cash squeeze in Chhattisgarh and Jammu and Kashmir is evident in dip in terrorist and separatist activities in the states.

Tackling terror funding was spelt out by Prime Minister Narendra Modi as one of the objectives of demonetisation when he announced the move on 8 November.

He said the his next step will be to "cleanse" political funding.

Jaitley also dismissed the impact of demonetisation on GDP. He said it was only a "transient impact" and when more money comes into the system, it impacts the formal economy. 

Jaitley vehemently defended the note ban decision, which sucked out 86 per cent of the currency in circulation, curbed economic activity and put common man at great inconvenience, saying the move was not intended to confiscate money but to bring it in formal channels and tax it. 

The move, he said, was aimed at flushing out black money, eliminating fake currency, strike at the root of terror financing, convert non-formal economy into a formal economy to expand tax base and employment, and to give a big boost to digitalisation of payments to make India a less-cash economy. 

With the return of the money, the anonymity associated with cash has gone, he said, adding the tax department is scrutinising 18 lakh bank accounts with unusual deposits post note ban. 

'Significant portion of deposited notes could be illicit'

The Finance Ministry held that a "significant portion" of the deposited cash could be black money. 

The tax authorities have found undisclosed income of Rs 17,526 crore and Rs 1,003 crore has been seized so far, the finance ministry said in a statement. 

"A significant portion of SBNs (Specified Bank Notes) deposited could possibly be representing unexplained/black money," the finance ministry said in a statement. 

"The fact that bulk of SBNs have come back to the banking system shows that the banking system and the RBI were able to effectively respond to the challenge of collecting such a large number of SBNs in a limited time," the ministry statement said. 

The effective currency in circulation today is only 83 per cent with full remonetisation having taken place, it added. 

The statement said transactions of more than 3 lakh registered companies are under the radar of suspicion while 1 lakh companies were struck off the list. 

The government has already identified more than 37,000 shell companies which were engaged in hiding black money and hawala transactions. 

Around 163 companies which were listed on the exchange platforms were suspended from trading, pending submission of proof documents. 

The Income-Tax Directorates of Investigation have identified more than 400 benami transactions up to May 23, 2017 and the market value of properties under attachment is more than Rs 600 crore, the statement added.

(With PTI inputs) 

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