There are early signs of widening of the tax base, greater use of electronic payment channels as well as lower cash in the economy post-demonetization, although the move to scrap old Rs 500 and Rs 1,000 notes resulted in deceleration of economic activity, with the informal sector facing the negative impact, the Economic Survey said.
Chief economic adviser Arvind Subramanian, however, admitted that it was too early to jump to conclusion and it would be advisable to watch the impact over the long run. The second volume of the government's economic report card tabled in Parliament on Friday, estimated that that compared to the normal growth trajectory, the cash in the system was 20% lower, and the sudden move had also resulted in a shift to electronic and plastic payment tools.
On the assumption that the process of remonetisation is complete, the Survey pointed out that cash as a share of both GDP and money supply has decreased. The cash to GDP ratio has declined by about 1.6 percentage points to 9.7% and as a proportion of money it has fallen by 5 percentage points to around 59%.
Separating the impact of demonetisation on tax compliance, the Survey concluded that as many as 5.4 lakh tax payers, or 1% of all individual taxpayers, came on board. But, its impact in terms of tax collections was muted. This is because the average income of the new taxpayer was Rs 2.7 lakh, an income level which represents a modest increase over the tax threshold of Rs 2.5 lakh. The addition to the reported tax income was about Rs 10,600 crore.
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