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Of "Shaky" Demonetisation Statistics, Arun Jaitley and Black Money

May 22, 2017

28

We don't live in a perfect world. And given this, governments like to showcase the positive impact of the decisions they make, all the time. Sometimes, they get very desperate in the process.

Take the case of the economic impact of demonetisation. Most data now coming out clearly shows that the decision did not have a positive impact on the Indian economy. It might have helped the Bhartiya Janata Party to win the Uttar Pradesh assembly elections, but that doesn't necessarily make it a right decision on the economic front.

Nevertheless, the Modi government would like us to believe that demonetisation has helped the country on the economic front. Early last week the finance minister Arun Jaitley said that "more than 91 lakh people were added to the tax base due the result of the actions taken by the income tax department."

It was later clarified that 91 lakh people were added to the tax base in 2016-2017(i.e. between April 1, 2016 and March 31, 2017). As per Jaitley's statement 91 lakh individuals were added to the tax base post demonetisation, which is incorrect. Meenakshi Goswami, Income Tax Commissioner and the official spokesperson of the Central Board for Direct Taxes (CBDT), told NDTV later in the week that "91 lakh was the total number of new taxpayers enrolled in the financial year 2016-2017."

Now this makes things interesting. On the face of it, the addition of 91 lakh individuals to the income tax base sounds like a huge number. But when we are talking about any increase or decrease, a number should never be viewed in isolation.

The trouble is that we don't have long term data on this front because of a change in the definition of "tax base" and "new tax payer added during the year". The annual report of the ministry of finance for 2015-2016 points out that new taxpayers "added during the year 2014-15 is 76,04,154". This basically means that 76 lakh new taxpayers were added during 2014-2015. I couldn't find any data for 2015-2016. Now compare the 91 lakh additions in 2016-2017 to 76 lakh additions in 2014-2015, and suddenly the number doesn't seem too high, given that no demonetisation was carried out in 2014-2015.

Even if the government doesn't do anything, taxpayers get added every year, especially when the minimum tax slab continues to remain the same. In 2014-2015, the minimum tax slab was Rs 2,50,000, which is where it continues to be. This basically means that inflation alone would have ensured that more people came into the tax bracket and thus increased the tax base.

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Over and above this, as the economy grows and people earn more, more people come into the tax bracket. Once we take these factors into account, the addition of 91 lakh taxpayers suddenly doesn't sound much, especially taking into account the disruption that demonetisation caused through the length and the breadth of the country.

Further, Sushil Chandra, chairman of CBDT said that between November 2016 and March 2017, the search actions of the income tax department revealed an undisclosed income of Rs 16,398 crore. On the other hand, the surveys had led to a detection of Rs 6,746 crore during the same period.

Again, if we look at these numbers in isolation, they sound like a lot of money. But that doesn't turn out to be the case if we look at numbers over a period of time. Take a look at Table 1. It shows the undisclosed income admitted to and detected during the search operations as well as surveys conducted by the income tax department over the last few years.

Table 1: Undisclosed income
Financial Year Number of groups searched Undisclosed income admitted (in Rs Crore) Number of surveys conducted Undisclosed income detected (in Rs Crore) Total undisclosed income (in Rs Crore)
2012-2013 422 10,291.61 4630 19,337.46 29,629.07
2013-2014 569 10,791.63 5327 90,390.71 1,01,182.34
2014-2015 545 10,288.05 5035 12,820.33 23,108.38
2015-16 445 11,066.24 4422 9,654.8 20,721.04
2016-17* 222 6,304.71 977 17,62.51 8,067.22

*Up to September 2016 in case of search numbers and August 2016 in case of survey numbers
Source: Ministry of Finance Annual Reports and the Press Information Bureau

The numbers for 2016-2017 are incomplete. But there is enough detail that lets us analyse the issue. Between April and September 2016, the total undisclosed income (or black money) admitted through search operations of the income tax department stood at Rs 6,304.71 crore. The undisclosed income detected through surveys conducted between April and August 2016 had stood at Rs 1,762.51 crore. If we add these numbers we get Rs 8,067.22 crore.

Between November 2016 and March 2017, the search actions of the income tax department revealed an undisclosed income of Rs 16,398 crore, as pointed out earlier. On the other hand, the surveys had led to a detection of Rs 6,746 crore during the same period. Adding both these numbers we get Rs 23,144 crore. Adding this to the earlier Rs 8,067.22 crore, we get around Rs 31, 211 crore.

This is the total undisclosed income identified by the income tax department during the course of 2016-2017. The number is incomplete because the information for the month of October 2016 is missing in case of search operations and information for the months of September-October 2016 is missing in case of survey operations.

Nonetheless, it is a good ballpark number to work with. Hence, the total amount of undisclosed income or black money identified by the income tax department in 2016-2017 stood at more than Rs 31,211 crore.

Is it such a big deal? Look at Table 1. The total amount in 2012-2013 had stood at Rs 29,629 crore. This amount hasn't been adjusted for inflation. It is safe to say that in inflation adjusted terms more undisclosed income was identified by the income tax department in 2012-2013 than in 2016-2017. In 2013-2014, the number stood at Rs 1,01,182 crore, which is significantly more than 2016-2017. And it is worth remembering here that these numbers happened without demonetisation. In fact, as the numbers clearly show the efficacy of the income tax department when it comes to identification of black money has come down since 2014-2015.

To conclude, the rosy picture of demonetisation that the government is trying to paint, is really not true. The more data we look at the clearer this becomes.

Postscript: I recently did a podcast with the writer Amit Varma who is currently the editor of the Pragati magazine, on the Right to Education and how it has screwed up our education system. Most of what I spoke was based on my new book India's Big Government-The Intrusive State and How It is Hurting Us. You can listen to the podcast here.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. He is the author of the Easy Money trilogy. The books were bestsellers on Amazon. His latest book is India's Big Government - The Intrusive State and How It is Hurting Us.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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9 Responses to "Of "Shaky" Demonetisation Statistics, Arun Jaitley and Black Money"

om banmali

Jun 1, 2017

Your articles are backed by convincing facts and figures and help us to form right opinion about the high sounding claims made by leaders of narender modi govt.

Like 

kamalakanta

May 26, 2017

In a news paper dated 25.05.2017 the following news appeared, in this respect we request a factual discussion by Mr Vivek Kaul in some next edition
PM Narendra Modi's demonetisation move gave economy Rs 5 lakh crore advantage
India's economy has received a Rs 5 lakh crore advantage thanks to PM Narendra Modi's decision to scrap the old Rs 500 and Rs 1,000 notes, an assessment report has found.

Like 

Jaspal Singh Parmar

May 23, 2017

It is good to see that we still have some people who are having the courage to show to the Governmenthow they are trying to befool the people of country by putting half truths in public domain.
It is sad to see that Finance minister is using the data in a manuplative wayh.
Congratulations to the Editor, to come up with the statistics showing how the GOVERNMENT of the day is misleading the PUBLIC.
Regards,
Jaspal Singh Parmar

Like (1)

Gori

May 23, 2017

Unfortunately writer is looking at Demonetisation in a very lopsided manner and I could not help but disagree with him.

While I have been outside the country for long - having spoken to many friends who were milking the system thru ages - it is very clear that this one thing has broken the back of many such people - brought out lot of dirty money into the open, plus has put the fear of God in scores of people.

There are huge positive impact of Demonetisation that people who bury their head in statistics can never even comprehend. Just like you have scores of great investment guru's - but not one of them would be a millionaire. Some people are so much in awe of their own intelligence that they can not look beyond it...

Like (3)

R Tayal

May 22, 2017

Dear Vivek, I have been your avid reader on Equitymaster over the last few years. But over the last few months (and I have commented so earlier also) you are beginning to lose my respect as you have gotten obsessed with people (read- Modi Govt) rather than issues. You are confusing the readers whether you are an economist or a political writer. I hold no brief for Modi Govt. For me any Govt's good deeds are to be lauded and the bad/malafide ones critiqued. But I find you only criticizing the Modi Govt all the time. Suggest you get rid of this split personality and make your career choice clear, though even as a political writer I would expect objectivity & unbiased analysis from you. You continue to ignore readers' feedback not to look at Demonetization in isolation but together with other spokes of the overall strategy, which itself is a journey & not a few months' wonder panacea. I am sure you are smart enough to understand politicians claim more credit than is due, but why waste your columns dwelling on their hyperbole.
Secondly, all organisations (including Govts world over) do not make all decisions right but it's okay to make mistakes. What certainly, however is not okay, is not to make an attempt or to take a risk.

Like (3)

Shankar

May 22, 2017

Excellent piece of information.

Like (3)

N kadam

May 22, 2017

Vivek and his obsession with criticising demonitisation. Sickening.

Like (2)

Madhav Mavalankar

May 22, 2017

I congratulate the editor, for taking this bold step of publicly demonstrating by in depth analysis , that Demonetisation did not have such a great impact, as publicized by the government propogenda machinery and the FM.
WHAT HAS HAPPENED TO OUR ENTIRE NATION AND IT's INDUSTRIALISTS, BANKERS AND OPINION LEADERS? Why are they not coming out in public and criticize this monumental mistake by our govt.
I request you to release this article to major news channels, and intellectuals of the country.
Constructive criticism is basis of goods democracy!
It takes courage to criticize a very popular govt.
Regards,
Madhav Mavalankar

Like (2)

Jayaram td

May 22, 2017

Good analysis but modiji andh bhakts never believe

Like (2)
  
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