“India remains the fastest growing economy in the world – economic fundamentals are strong, and reform momentum continues”-The World Bank’s Report dated 29th May, 2017.
It was perhaps the boldest decision taken by any government in the 21st century India to announce transformational demonetisation of 500 and 1000 rupees notes circulated in the market on November 8, 2016. The decision was mainly taken to curb black money and corruption, to make fake currencies ineffective and to destabilise terror-funding. To quote Hon’ble Prime Minister, Sh. Narendra Modi while announcing demonetisation, “To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8th November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper. The rights and the interests of honest, hard-working people will be fully protected”.
As we know that black money is that part of income on which taxes are not paid. The increasing amount of black money has been able to establish a parallel economy which serves its own interest in contradiction to the national interest of the country. It is a serious threat to the growth and stability of the economy. It is also the contributor of economic and social inequalities in the society. The root sources of black money are mainly concealment of income from tax and corruption in the public system. India is rapidly increasing in terms of growth but we are ranked 76 in Global Corruption Perception ranking by the Transparency International.
The demonetisation has brought back around 95% of the cash in circulation in the market. It has greatly increased the number of persons using active bank accounts. This information will be useful in identifying the number of people having high value transactions. Those who have deposited unaccounted money in banks are liable to pay additional tax and are under the scanner of the government. Post-demonetisation has witnessed substantial amount of revenue growth with greater tax compliance. Deposits in banks will boost GDP growth and help in cut in lending rates of loan by banks and other financial institutions. Due to the collection of additional taxes fiscal deficit will certainly come down and formalisation of the economy will result in greater financial inclusion. The crackdown on black money will also prevent people from parking their unaccounted income in physical assets such as real estate and will bring down real-estate pricing to help genuine buyers.