Tax collection up after demonetisation: Arun Jaitley

On the penultimate day of depositing the old ₹500 and ₹1,000 notes, Finance Minister Arun Jaitley said that the “critical part” of remonetisation was now over, and assured that it would be “much better” going forward with more of ₹500 notes coming into circulation soon. Hard-selling the demonetisation decision, he said that was significant increase in tax collection in all segments, apart from an increase in the Rabi area sown.

“The critical part of remonetisation is now behind us and it will be much better, going forward,” said Jaitley addressing a press conference in the national capital. “The RBI has large amount of currency available; a major part of currency has been replaced. More of ₹500 notes are coming in circulation,” he added.

The fact, however, is that the RBI has not been able to remonetise fast enough after ₹15.4 lakh crore was demonetised on November 8. The best indication of the slow pace of remonetisation is the long serpentine queues still seen in front of the few ATMs that have cash. That apart, recently the banks are said to have asked the Finance Ministry to continue with the cash withdrawal curbs beyond December 30, as they feared huge withdrawals which could not be managed.

Jaitley said that notwithstanding what critics predicted, tax collection in all segments saw a significant increase. Till December 19, gross direct tax collections had gone up by 14.4% with the net increase being at 13.6%. The indirect tax collections grew by 26.2% in the period between April 1 and November 30. “There has been a significant increase in indirect taxes,” said Jaitley. The increase of 26.2% in central indirect tax included a surge of 43.5% in excise duty, 25.7% in service tax and 5.6% in custom duty. The Finance Minister said that the impact on the GDP was not as bad as feared and that various sectors such as investment in mutual funds and life insurance, international tourism and fuel consumption had seen growth after demonetisation.

However, with November being the time for advance tax payments for individuals and companies, the direct tax collections to a large extent may not really have been affected much by demonetisation. “The true impact would show up in the next quarter’s collections,” says Pronab Sen, who has held the position as the first Chief Statistician of India and currently is the Country Director for IGC (International Growth Centre).

While critics had predicted that the cash crunch would affect agriculture hard, Jaitley said that the area sown under rabi crop had gone up by 6.3% over last year.

“It may not be apt to compare this year’s sown area under the rabi crop with that of last year. This is because last year was the second year of drought,” says Sen. More than just looking into the area sown, adds Sen, it is more important to look into whether the inputs have gone up such as quality seeds, fertilizers, pesticides and the land preparation, which is labour-intensive. Moreover, the Finance Ministry should have ideally mentioned about the turnover in the ‘mandis’.

Finally, when the Finance Minister assures that things will be “much better, going forward”, the problem is the comparison is always with the situation on November 11— not before the demonetisation decision. Truly better days may be a long way off.