Even though 99% of the scrapped notes have come back into the system post-demonetisation, Prime Minister Narendra Modi has succeeded in driving home the point that the government is serious about tackling black money and tax evasion with the help of information about the depositors.
Given the Reserve Bank of India (RBI) in its annual report has revealed that Rs 15.28 lakh crore, or 99% of the Rs 15.44 lakh crore scrapped notes through a big-bang announcement by Prime Minister Narendra Modi on November 8 last year, had come back to the central bank till June 30 this year, those opposing the move may raise questions about the success of the move. But, it is a fact that even if the government doesn’t have much to show at present in terms of returns from demonetisation, it has succeeded in creating a deterrent against black money creation and accumulation, and those who had kept their unaccounted income in old Rs 500 and Rs 1,000 notes now know that they are under scrutiny.
The very fact that almost all the money kept in high denomination notes are now part of the legitimate economy far outweighs the losses to the GDP due to demonetisation. The real benefit, however, will be in terms of expansion of the tax base and additional tax collections, both in the direct taxes and the indirect taxes.
While the income tax department and other investigative agencies are in the process of scanning and taking action on the basis of information coming from the data on Rs 500 and Rs 1,000 deposited during demonetisation, PM Modi, in his Independence Day speech, clearly outlined the kind of success he is looking at.
If he has got information from the system that Rs 1.25 lakh crore of black money has already been detected and over Rs 1.75 lakh crore is under scrutiny, it is clear that demonetisation is just the beginning of the process to get hold of the black money hoarders.
He also said that Rs 3 lakh crore worth of black money that would have never come into the formal system has come in because of the demonetisation. Not only this, thanks to the move, while 3 lakh companies are suspected of being shell companies, 1.75 lakh companies have already been closed permanently.
Along with the goods and services tax (GST), the urgency that the government machinery is now showing in curbing cash transactions and the creation of black money will undoubtedly prove to be a potent weapon in cleansing the economy.
So, despite the problems due to cash shortage during demonetisation, it will not be correct to question its efficacy.