The aim of demonetisation was not confiscation of money says Arun Jaitley

NEW DELHI: Finance minister Arun Jaitley strongly defended demonetisation against accusations that it hadn’t met its objectives as evidenced by the numbers in the Reserve Bank of India’s annual report, saying the impact of the note cancellation had been “extremely positive” in multiple areas. The object of the massive exercise hadn’t been confiscation, he said, blaming the Opposition for confusing the issue while detailing the list of accomplishments.

“The real objects of demonetisation were formalisation (of the economy), attack on black money, less-cash economy, bigger tax base, digitisation, a blow to terrorism,” he told reporters. “We do believe that in each of these areas the effect of demonetisation has been extremely positive.”

Responding to former FM P Chidambaram’s comment that demonetisation had flopped badly, Jaitley said, “It is unfortunate those who have never fought against black money and, when in power, never took a single step against black money, tried to confuse the object of the demonetisation exercise as to how much currency eventually gets confiscated or how much disappears.”

One of the objectives had been to move India away from being a highcash economy, he said. Moving more transactions into the digital space means they can be tracked, deterring evasion.

The minister said the government has taken steps to squeeze cash out from the system and the next step would be to bring an end to the use of black money in elections.

Demonetisation has also left insurgents and terrorists in Chhattisgarh and Kashmir starved for cash, thus weakening them.

The finance ministry said in a statement that the government had in fact expected the bulk of the cash to be returned to become effectively usable currency.

“The fact that bulk of SBNs (specified bank notes) 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 said. “At the same time, the effective currency in circulation today is only 83%, with full remonetisation having taken place.”

The finance ministry said the five main objects of demonetisation were: -Flushing out black money -Eliminating fake currency – Ending financing of terrorism and left-wing extremism – Converting the non-formal economy into a formal economy to expand the tax base and employment — Giving a big boost to digitisation of payments to make India a lesscash economy

Jaitley dismissed the notion of demonetisation slowing growth, saying it was only a “transient impact” and that when more money comes into the system it affects the formal economy. He pointed to the 17% decline in currency noted by RBI to show that demonetisation had succeeded on that count.

The note recall was intended at rooting out black money and expanding the tax base of the country. It’s obvious that the direct tax base had already started expanding substantially, he said, citing a 25% rise in personal income tax.

“Those dealing in cash currency were now compelled to deposit the money in banks and the anonymity which existed with regard to the cash money operating in the system has come to an end,” Jaitley said He said the expanded base of even indirect taxation, as evident in the initial deposits of the goods and services tax (GST), is indicative of the fact that there is an increasing number of transactions taking place within the system itself. Demonetisation has also allowed the detection of fake currency, he said.

The finance ministry said a significant portion of notes deposited could represent unexplained or black money and accordingly, Operation Clean Money was launched on January 31. Between November 2016 and the end of May 2017, income tax authorities detected a total of Rs 17,526 crore in undisclosed income and seized Rs 1,003 crore.

As a result of the demonetisation drive, there had been a substantial increase in the number of Income Tax Returns (ITRs) filed. “The number of returns filed as on August 5 registered an increase of 24.7% compared to a growth rate of 9.9% in the previous year,” it said.

Advance collections of personal income tax showed a growth of 41.79% on August 5 over the corresponding year-earlier period. Personal income tax under self-assessment grew 34.25%.

Transactions of more than 300,000 registered companies are under the radar of suspicion while 100,000 companies had their registration cancelled, it added.

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

About 160 companies listed on the exchanges were suspended from trading, pending submission of documentary proof.

The income tax department has identified more than 400 benami transactions up to May 23 and the market value of properties under attachment is more than Rs 600 crore, the ministry said.

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