Demo Effect: Expansion Of Tax Net, Economic Slowdown & Loss Of Earnings

New Delhi, November 8: Three years ago on this day the Indian government took the measure of demonetising high value notes of Rs 500 and Rs 1,000 from the system to curb black money. In place of those high value notes, the government introduced Rs 2,000 notes.

After that, the government has taken several measures to promote digital transactions but according to feedback from people via LocalCircles survey, though digital transactions are increasing year over year, a large number of people still prefer cash transactions over digital transactions.

LocalCircles conducted a pan India survey to check how consumers are conducting transactions and if they feel that demonetisation had brought any positive changes for the country, which received over 50,000 responses from across India. The first question asked citizens how many of their monthly purchases on an average over the last 12 months have been without a receipt. Around 39 per cent said 5-25 per cent, 29 per cent said 25-50 per cent and 27 per cent said 50-100 per cent. 

The Rs 2000 note has made it easier for people to keep cash in stock. The next question asked people when they purchased a property in the last 12 months, how did they pay for the transaction. 33 per cent said they paid the full amount by e-payment or cheque while 10 per cent said they paid under 25 per cent in cash and rest via e-payment or cheque. 57 per cent said they said 25-50 per cent in cash and rest via e-payment or cheque.

An important goal of demonetisation was to reduce the use of cash in transactions and encourage people to pay using non-cash modes, but the use of cash in the Indian economy does not seem to be reducing. When asked for which category of purchases have they paid the most amount in cash (without receipt) in the last 12 months, 31 per cent said salaries of domestic staff, 36 per cent said groceries, 5 per cent said discretionary purchases and eating out and 7 per cent said property, rent and home repairs. 1 per cent each said jewellery and used vehicles while 7 per cent said they used cash to pay bribes. 12 per cent said they did not make any purchases in cash.

People were asked that three years after demonetisation, what do they think was its top benefit. 21 per cent said it reduced black money in the economy and 12 per cent said it increased direct tax collections. 42 per cent said it brought a large number of evaders in the tax net while 25 per cent felt demonetisation had no benefits at all.

When asked about the negative impacts of demonetisation, 32 per cent said it was loss of earnings for many unorganised sector workers and 2 per cent said it was sizable migration of labour to villages and lower rural income. 33 per cent said the biggest negative impact of demonetisation is economic slowdown while 28 per cent feel it had no negative impact. It has also been reported that the amount of fake currency seized in the last three years has considerable shot up when compared to the pre-demonetisation times.

The final question asked what should be the one move that the government should implement immediately to further reduce black money in India. 29 per cent said linking of all property ownership to Aadhaar should be made mandatory and 11 per cent said Rs 2,000 note should immediately be demonetised. 5 per cent said a 2 per cent transaction tax should be levied on all cash transactions above Rs 10,000 while 6 per cent said detailed scrutiny should be done of all individuals with a Swiss Bank account. 42 per cent said disclosure of all assets of all ministers and government employees and their families should be made mandatory.

Comparison of key data points 2018 to 2019 

LocalCircles was also able to draw a comparison between the responses received on the demonetisation survey in 2019 as well as 2018. The comparison shows that the percentage of citizens using cash as the primary mode of transaction reduces over 30 per cent from 2018 to 2019.

Citizens also admitted to using cash as the primary component in property buying, rose from 2018 to 2019. This may be an indication that the use of black money is now increasing in property transactions.

The comparison of the two years also shows that the highest number of citizens continue to believe that expansion of the tax net has been the top benefit of demonetisation.

It was widely speculated that demonetisation resulted in a reduction in the economic growth rate of the country, with many reports calling these speculations baseless. On the other hand, India’s fight against black money received a major boost with Switzerland’s Federal Tax Authority providing information on financial accounts held by Indians under the framework of global standards on AEOI (Automatic Exchange of Information), with the next exchange scheduled to happen in September 2020. It remains to be seen if the use of cash in India reduces in the next few years as newer modes of digital transactions continue to become popular with the Indians.

Demographics

Over 50,000 responses were received from 30,000 unique citizens located in over 220 districts of India. Approximately 42 per cent of the respondents were from tier 1 cities, 28 per cent from tier 2 cities and 30 per cent were from tier 3 and beyond cities or rural locations. 34 per cent participants were females whereas 66 per cent participants were males.