Washington: Union finance minister Arun Jaitley on Friday said the government was aware that demonetization would cause a cash crunch in India but had envisaged long-term advantages like “great and substantial” movement towards digitization of the economy.
“We were conscious of the fact that the demonetization, to the extent that it causes a cash crunch made temporarily for a quarter or two impact on us adversely. But there were some long-term advantages which were envisaged,” Jaitley told Bloomberg TV in an interview aired in Washington.
Asked whether demonetization has been a success, he said the first significant advantages that has taken place is that there is a “great and a substantial movement” towards digitization of the economy. “The use of cash relatively comes down, the use of other mode of payments increases. The second is, there is a substantial number of assesses who have been added,” Jaitley said.
He also said that he anticipates a substantial increase in the tax base. “I think the new normal has been established in India and a message is loud and clear that it’s no longer safe to deal substantially in cash,” said the finance minister. Responding to a question, Jaitley said he does believe that India has carried on a large number of structural reforms in the last few years. “With the kind of structural reforms which are setting in, the kind of public expenditure and the foreign direct investment we are getting in, I do expect the growth to turn around and improve this year,” he said.
“I do believe that the net effect of demonetization, that is the invigoration of the informal economy with the formal one. The GST (goods and services tax) is likely to set by the first of July this year,” he said, hoping that with a good monsoon being forecasted this year, the growth would increase.
“The one important challenge that we have is with regard to a private sector investment, we do believe that the global curve is also turning, go turning slowly. Domestic consumption is improving. And hopefully, if we are able over the next one year or so, address the problem of the Indian banking system itself. We will again pick up significant growth,” Jaitley said.