Jaitley defends note ban, says key to formalise economy

Launching a strong defence of demonetisation, Finance Minister Arun Jaitley on Thursday said the real purpose of the exercise was not confiscation of cash but bring it in the formal economy and increase the tax base.

“Confiscation of currency was not an objective of Demonetisation. Getting it into the formal economy and making the holders pay tax was the broader objective,” Jaitley said in a blog post as the Opposition geared up to mark the second anniversary of note ban with protests and demonstrations.

“The system required to be shaken in order to make India move from cash to digital transactions. This would obviously have an impact on higher tax revenue and a higher tax base,” Jaitley said.

The minister said the impact of demonetisation had led to a higher collection of both direct and indirect taxes, thus improving the fiscal health.

“It is now becoming increasingly difficult to evade the tax system,” the finance minister said.

Jaitley said demonetisation compelled people to deposit cash – which involved anonymity in transactions and enabled tax evasion – in banks.

“The enormity of cash deposited and identified with the owner resulted in suspected 17.42 lakh account holders from whom the response has been received online through non-invasive method,” he said.

He said the violators faced action, larger deposits helped the lending capacity of banks and a lot of money was diverted to mutual funds.

“Larger deposits in banks improved lending capacity for the banks. A lot of this money was diverted to the Mutual Funds for further investments. It became a part of the formal system,” Jaitley added.

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