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Demonetisation and GST are actually blessings in disguise
Demonetisation and GST, when introduced in November, 2016 and July, 2017 respectively, caused much disruption and inflicted great pain. Yet, as time unfolds, we are seeing more and more benefits emanating from these economic reforms.

Modi has been on a mission to restore honesty and sincerity in public life and administration, weed out black money and corruption, and speeding up economic development resulting into all-round progress. There has been a series of measures and reforms undertaken by the present government to this end in the last almost 3 years, with demonetisation and GST as two major policy reforms. These two reforms alone have the potential to add up to 2 per cent to India's GDP.

Standard and Poor (S&P) had said in December 2016 that as per it's base case scenario, the disruption from demonetisation should be short-lived with demand revival in the next one to two quarters, limiting the impact on Indian banks and corporates.

This revival in the short term has happened. GDP in quarter ended June, 2017 had further declined to 5.7 per cent showing persistent declining trend over the last 5 successive quarters. Although, disruptive reforms usually take quite some time to reflect in GDP growth, it has turned around and risen to 6.3 per cent in the July-September quarter of 2017.

While implementation of remonetisation may have been faulty as stocks of black money could not be totally unearthed, its intention cannot be doubted. Prof Kaldor had recommended this long back in the 60s. Also, demonetisation created fear in the minds of the black marketers, bringing down the volume of such transactions substantially. Terror funding has almost stopped, huge undisclosed income unearthed and revenue earnings & digitization have increased considerably.

Income Tax department served notices on 1.16 lakh individuals and firms who had made cash deposits of more than Rs 25 lakh in bank accounts but did not file returns. It also unearthed undisclosed income of Rs 7961 crore.

The number of returns filed as on 05.08.2017 stands at 2,82,92,955 as against 2,26,97,843 filed during the corresponding period of FY 2016-2017, registering an increase of 24.7 per cent compared to growth rate of 9.9 per cent in the previous year. The growth in returns filed by Individuals is 25.3 per cent with 2,79,39,083 returns having been received up to 05.08.2017 as against 2,22,92,864 returns in the corresponding period of FY 2016-2017. The tax collection figures between April-June 2017 quarter show an increase in net indirect taxes by 30.8 per cent and an increase in net direct taxes by 24.79 per cent year-on-year, indicating a steady trend of healthy growth. India's revenue receipts are estimated to touch Rs 28-30 trillion (US$ 436- 467 billion) by 2019.

Post-demonetisation, the realty sector has fallen considerably and made buying of homes affordable to many more people.

With demonetisation, digitisation got a much-needed fillip. There has been a surge in digital payments with an 80 per cent increase in value of transactions in 2017-18. The total is expected to touch Rs 1800 crore. This is as per TOI report dated 1/1/2018. The BHIM and UPI payment gateways are already averaging a daily transactional value of more than Rs 140 crore per day.

The economy now has roughly Rs 5 lakh crore less of cash than the amount it would have had if demonetisation had not happened.

Regarding the Goods and Services Tax, it would, by amalgamating a large number of Central and State taxes into a single tax, alleviate cascading or double taxation in a major way and pave the way for a common national market. This mechanism will ensure that most transactions are done using an invoice and will thereby establish a trail of all transactions.

GST has been envisaged as a more efficient tax system, neutral in its application and attractive in distribution. To elaborate, the advantages of GST are:

  • Wider tax base, necessary for lowering the tax rates and eliminating classification disputes.
  • Elimination of multiplicity of taxes and their cascading effects.
  • Rationalization of tax structure and simplification of compliance procedures.
  • Harmonization of centre and State tax administrations, which would reduce duplication and compliance costs.
  • Automation of compliance procedures to reduce errors and increase efficiency.

The GST structure would follow the destination principle. Accordingly, imports would be subject to GST, while exports would be zero-rated. In the case of inter-State transactions within India, the State tax would apply in the State of destination as opposed to that of origin.

From the consumer point of view, the biggest advantage would be in terms of reduction in the overall tax burden on goods and services. Introduction of GST would also make Indian products competitive in the domestic and international markets. Last but not the least, this tax, because of its transparent character, would be easier to administer.

The introduction of the GST is significant in terms of growth effects, price effects, current account effects and the effect on the budget balance. Further, in a highly developed open economy with a high and growing service sector, a change in the tax mix from income to consumption-based taxes is likely to provide a fruitful source of revenue. Moreover, some reduction has already occurred in the administrative component of the compliance cost of the GST as well some increase in tax revenue from the informal sector.

(The writer is an author and commentator on economic, political and social issues.)

Editorial NOTE: This article is categorized under Opinion Section. The views expressed in this article are solely those of the author and do not necessarily represent the views of In case you have a opposing view, please click here to share the same in the comments section.
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