Virtual News

Some economists supported this idea of demonetisation such as Soumya Kanti Ghosh, the chief economic advisor of India’s largest bank, the State Bank of India. In an article published in the Business Standard newspaper on November 14, 2016, Ghosh estimated that “roughly around ₹4.5 lakh crore of (demonetised) money could disappear from the system”. “On the lighter side, we hope too big an amount of such notes are not burnt, adding to the Delhi smog”, Ghosh added.
Such hopes and potential fires were extinguished very soon.
The poor had to bear the brunt of it
Describing demonetisation as a nudge toward digital payments is how the policy is justified by many people today. However, the original policy announcement did talk about reducing the amount of cash in circulation in the Indian economy.
“The magnitude of cash in circulation is directly linked to corruption. Inflation becomes worse through the deployment of cash earned in corrupt ways.
The poor have to bear the brunt of this. It directly affects the purchasing power of the poor and the middle class. This creates problems for an honest person in buying property. The misuse of cash has led to an artificial increase in the cost of goods and services like houses, land, higher education, health care and so on”, the Prime Minister’s speech on November 8, 2016, said.
One of the factors that led to the tax windfall of the State
demonetisation was not the only policy change that has affected tax collections in India. It was followed by the Goods and Services Tax roll-out in July 2017.
In September 2019, the government announced a significant reduction in Corporation Tax rates, which led to a sharp fall indirect tax collections. Even as economic observers were waiting for the long-term effects of corporation tax cuts, the economy was hit by the pandemic, leading to a sharp fall in GDP and tax collections across the board.
With these caveats in place, a look at the central government’s gross tax collection vis-a-vis its budgeted targets — they are the best measure of whether the government’s expectations about tax collection have been fulfilled — does not show much of an improvement after demonetisation.