New Delhi: The demonetisation exercise launched in November 2016 has resulted in a rise in digital payments, enabled income tax officials to detect unaccounted income, motivated the public to be tax compliant and also had an impact on the country’s economic growth, the Center has said. Where is the Supreme Court?
In a 16-page affidavit submitted in the apex court on Wednesday, the government defended the exercise – in which Rs 500 and Rs 1,000 currency notes were withdrawn from circulation – saying it was done to eliminate black money. It was part of the continuous effort of the government.
“The overall impact of the withdrawal of legal tender on economic growth was transient, with real growth rates at 8.2 per cent in FY16-17 and 6.8 per cent in FY17-18, both higher than the decadal growth rates. 6.6 per cent in the pre-pandemic years,” the affidavit submitted.
The government document was filed in an ongoing case challenging the demonetisation policy. A five-judge Constitution bench, seizing a batch of petitions on it, is likely to hear the matter on November 24.
The affidavit states that after the withdrawal of the two currency notes, the volume of digital payments increased manifold. From 1.09 lakh digital transactions worth Rs 6,952 crore in 2016, the volume crossed Rs 730 crore. During October this year, transactions worth Rs 12 lakh crore took place in a single month.
“The notification issued on November 8, 2016 on demonetisation was a major step to fight the menace of fake currency notes, hoarding of unaccounted assets and financing of subversive activities,” the affidavit said.
The exercise followed a Supreme Court order in 2011, in which it directed the government to set up a Special Investigation Team (SIT) to investigate and probe the issue of black money.
The SIT was constituted in 2014, which made several recommendations on ways to limit cash holdings and bring them into the banking system. At the same time, the government also found that there was a huge increase in the circulation of Rs 500 and Rs 1000 bank notes.
In its justification for withdrawing the two currency notes, the affidavit further stated that the Reserve Bank of India (RBI) data showed “a sharp increase of the two highest denominations” from 2010-11 to 2015-16. The circulation of Rs 500 notes increased by 76.4 per cent and that of Rs 1000 notes by 109 per cent.
Meanwhile, the RBI and the Government of India had also considered introducing a new series of notes to combat black money, counterfeiting and illegal financing. Therefore, the government issued a notification to withdraw the notes of the two denominations on the recommendation of the Central Board of the RBI.
“This was not a standalone or isolated economic policy action,” the affidavit said. Demonetisation was one of the “significant steps” taken to strengthen and expand the formal economy, weaken the informal economy and root out black money and eliminate fake currency.
It was a measure taken as part of a “reform agenda” to “transform the nation” through a series of economic policies aimed at making large parts of the informal economy part of the formal economy and reap its benefits. was.
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The policy helped integrate the informal sector into the financing system
The formalization of the economy was a “policy push to expand opportunities” for millions of people living on the fringes of the economy. The affidavit argued that this was important as a major workforce in India works in the informal sector. The 2011 census puts the figure at 400 million out of a total workforce of 481 million.
The Center said the workforce in the “predominantly cash-based” informal labor sector was integrated into the formal financing system through measures such as demonetisation and digitisation, mobile and internet connectivity and opening of bank accounts. The affidavit states that this has ended their dependence on cash transactions.
Moreover, deposits made in bank accounts during that period enabled the Income Tax authorities to unearth large amounts of unaccounted income. As a result, there has been a substantial increase in the number of individuals filing Permanent Account Number (PAN), tax returns and income tax returns. Enrollment with Employees’ Provident Fund Organization (EPFO) and Employees’ State Insurance Corporation has seen a much higher growth than before.
On the legal aspect, the announcement was made as per the “Basic Power prescribed under the RBI Act”.
The law empowers the Center to withdraw any series of bank notes of any denomination on the recommendation of the RBI. The affidavit states that the consultation process with the RBI began in February 2016, but the decision-making process was kept confidential.