New Delhi: A day after the RBI revealed that almost all of the Rs 15.44 lakh crore junked currency had come back, Finance Minister Arun Jaitley on Thursday said deposits of “overwhelmingly large amount” of money in banks has ended anonymity around it and helped fix liabilities.
He said the fallout of the demonetisation of old 500 and 1000 rupee notes was on predicted line, with a hit on economic activity in one to three quarters but gains would accrue in medium to long term from integration of formal and informal economy.
The RBI, which had so far shied away from revealing how much of junked currency came back to system post the November 8 note ban decision, in its annual report yesterday said banks have received Rs 15.28 lakh crore, or 99 per cent of the currency invalidated.
According to submissions by its lawyers in the Supreme Court, the government had initially estimated about Rs 5 lakh crore would not come back into the banking system as holders of unaccounted money may find it difficult to deposit them in banks – the only source allowed for getting rid of old currency.
Jaitley said despite the pain associated with demonetisation, the country was ready for this kind of change.
“It’s nobody’s case that the black money has totally been eliminated. There are still people who will be doing such transactions. But, I think, a large amount of that has come in,” he said.
Speaking at the Economist India Summit here, Jaitley termed as a “very narrow vision” to consider just the dent in RBI’s profit due to printing of new currency as the cost of demonetisation.
“When the demonetisation was initially announced there was an element of uncertainty. There has not been many such experiments world over and therefore it is natural that there will be speculation as to how much money will come back,” he said.
The banned notes formed 86 per cent of the currency in circulation at that time. Holders of old notes were given a 50-day window to deposit them in banks.
“As the demonetisation progressed and the monies were deposited, it was quite clear that people have found ways and means, legitimately or otherwise, to get the money into the banking system irrespective of the consequences they will face later.
“It was clear that overwhelmingly large amount of money had come back into the banking system, something which was not of great consequences to us in the government,” he said.
The finance minister said it is quite obvious that people found the ways and “I think it did shake the system.”
But “the fact that money has got into the banking system doesn’t mean that they are legitimate money. Or the monies have got legitimately converted,” he said.
Depositing money in bank accounts had ended their anonymity.
“It means that the anonymity around the money which was otherwise floating in the system has come to an end. The money got identified with the owner. And henceforth he was fixed with explaining the liability of the money,” he said.
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Jaitley said the fallout of demonetisation was on predicted line as “more and more people will now be compelled to come into the tax net.”
This was evident from the rise in personal income tax as well as collections from the GST, which compelled transactions to be brought within tax net, he said.
Asked if demonetisation was good for the country, he said it was good for Indian citizens as they could not have lived indefinitely with an economy that was fastest growing in the world and yet had different colours of money.
When the anchor asked those present in the hall to vote if they agreed that demonetisation was good, a majority of them said yes.
Jaitley said despite the pain, the move had mass backing.
“I had a supportive voter immediately after the …
(demonetisation),” Jaitley said, apparently referring to BJP’s victory in Uttar Pradesh state elections in March 2017.
On the cost associated with note ban, he said the status quo of a parallel economy running could not have been allowed to go on indefinitely.
“In third quarter (of 2016-17 fiscal) when demonetisation took place GDP wasn’t substantially impacted. We had anticipated that one or two quarters could be impacted but the larger impact is you have 25 per cent more people filing income tax returns.
“Therefore when you say you spent money on printing of currency you have a very narrow vision … currency replacement takes place even in normal course. If you hadn’t been printing new currency but printing old currency. This is a kind of trifling argument,” he said.