Demonetization Alone Cannot Arrest Black Money

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New Delhi: Demonetisation, announced by India exactly six month ago, will not stop the generation of black money on its own.  More positive initiatives are needed to unearth all kinds of undeclared wealth, says a UN report.

In a surprise decision on November 8, Prime Minister Narendra Modi had scrapped old Rs 500/1000 notes, flushing out 87 per cent of the total currency in circulation.

The United Nation’s ‘Economic and Social Survey of Asia and the Pacific 2017’ said that while estimates of the size of the black economy in India vary at about 20-25 per cent of the GDP, cash is estimated to make up only about 10 per cent of that value.

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“The measure that is demonetisation did not, by itself, impede future black money flows in new denominations…complementary measures would be required to target all forms of undeclared wealth and assets,” the report said.

As per the report, broader structural reforms which could also contribute to enhanced transparency include goods and services tax, voluntary disclosure of income scheme and tracking of high-value transactions through taxpayer identification numbers.

“Other measures such as reforming the real estate registration process to ensure transparency are being discussed,” it said. It further added: “a more permanent increase in digital-enabled and non-cash-based transactions is likely, driven by awareness of cash-alternative solutions during the demonetisation exercise and strong government advocacy and incentives.”

Digital payments account for only 20 per cent of total transactions and 5 per cent of personal consumption expenditure.

Meanwhile, noted economist and former Chief Economic Advisor, Ministry of Finance, Kaushik Basu in a tweet said six months have passed since the India demonetised high value currency and now it is “time to do a stocktaking of what it achieved”.