New Delhi, Feb 1: Finance Minister Arun Jaitley today described demonetisation as "bold and decisive" measure saying it will have a multiplier effect on the economy and make GDP cleaner, bigger and real.
"Demonetisation of high denomination bank notes was in continuation of a series of measures taken by our Government during the last two years. It is a bold and decisive measure. For several decades, tax evasion for many has become a way of life," he said in the Budget speech of 2017-18.
Drop in economic activity, if any, on account of the currency squeeze during the remonetisation period is expected to have only a transient impact on the economy, he said. Demonetisation seeks to create a new 'normal' wherein the GDP would be bigger, cleaner and real, he said, adding, "this exercise is part of our Governments resolve to eliminate corruption, black money, counterfeit currency and terror funding".
He also said demonetisation has strong potential to generate long-term benefits in terms of reduced corruption, greater digitisation of the economy, increased flow of financial savings and greater formalisation of the economy, all of which would eventually lead to higher GDP growth and tax revenues. Noting that the demonetisation helps to transfer resources from the tax evaders to the government, he said, it can use them for the welfare of the poor and the deprived.
"There is early evidence of an increased capacity of banks to lend at reduced interest rates and a huge shift towards digitisation among all sections of society. We firmly believe that demonetisation and GST which were built on the third transformational achievement of our Government, namely, the JAM vision, will have an epoch making impact on our economy and the lives of our people," he said.
The surplus liquidity in the banking system, created by demonetisation, will lower borrowing costs and increase the access to credit, he said, adding, this will boost economic activity, with multiplier effects. "Thanks to the surplus liquidity created by demonetisation, the banks have already started reducing their lending rates, including those for housing," he said.
Expressing confidence that the pace of remonetisation has picked up and will soon reach comfortable levels, he said, the effects of demonetisation are not expected to spill over into the next year. Like all reforms, he said this measure is obviously disruptive, as it seeks to change the retrograde status quo.
"It will be our endeavour to improve upon these fiscal numbers, especially the fiscal deficit, in the next year, through greater focus on quality of expenditure and higher tax realisation from the huge cash deposits in Banks, triggered by demonetisation," he added.