5.4 lakh taxpayers added since demonetisation: Arvind Subramanian
The CEA also warned against farm loan waivers; its impact on the economy would be deflationary rather than inflationary
The government’s decision to demonetise Rs 500 and Rs 1,000 notes on November 8 has led to a possible 5.4 lakhs additional taxpayers into the system, Chief Economic Advisor Arvind (CEA) Subramanian said today.
“We can confidently say that about 5.4 lakh additional taxpayers were added post demonetisation, which might not have happened otherwise. It represents 1 percent of total taxpayers,” Subraminian told reporters after the release of the Economic Survey Volume II.
While the numbers of taxpayers have gone up, the reported taxable income, however, has not gone up, Subramanian said, explaining that many of these new filers were supposed to then report a taxable income of around their threshold.
“Whether the increase in taxpayers will lead to more taxes remains to be seen,” he said.
According to the survey, reliance on cash appeared to have declined sharply, after demonetisation. The decline may also indicate that a considerable portion of cash holdings was used for savings, which has now been transferred to the banking system.
Post-demonetisation, a new enforcement and compliance regime and increased digitalisation have reduced the use of cash for transactions, the survey said.
“We seemed to have achieved a 20 percent reduction in the equilibrium cash holding, which means that the tax-GDP ratio has come down...And this was one of the objectives of demonetisation. It seems something quite substantial has been achieved,” Subramanian said.
There isn’t enough data to measure impact of the note-ban on informal economy, but as pointed out in economic survey volume I, the impact can be captured through two-wheelers sales data, which has picked up now.
He continued to say that growth deceleration has begun before demonetisation. However, the deceleration intensified in the last two quarters of 2016-17.
Pointing out the benefits of demonetisation, Subramanian said that there has been a substantial increase in digitalisation across all categories such as the poor as well as the less affluent class of the society.
“And even though the immediate post-demonetisation surge has moderated in some cases, the level and pace of digitalisation are still substantially greater than before demonetisation,” he said.
FARM LOAN WAIVER
The CEA also warned against farm loan waivers explaining that if all states start offering them, its impact on the economy would be deflationary rather than inflationary.
The total burden of loan waiver could shoot up to Rs 2.7 lakh crore from the existing 1.25 lakh crore that some states have already announced.
Citing an example, Subramaninan said that Uttar Pradesh has already slashed its capital expenditure to accommodate the waiver. A reduction in capex may realise into weak demand in the state.
Till now, Uttar Pradesh, Karnataka, Maharashtra, Punjab, and Tamil Nadu have announced farm loan waivers.
The survey has said that farm loan waivers could cut overall demand in the economy by 0.7 percent. A string of state government-sponsored farm debt waivers that have drawn criticism from professional economists and the RBI will be keenly watched.
The Volume I of the economic survey, which contains policy and ideas was released earlier this year in January. Volume II, which features a sectoral review and historic data for the whole year was made unveiled today due to advancement of the budget date to February 1 from the 28th of the month.Till last year, both the volumes of the economic survey were released a day before the Union Budget.