System lighter by ₹3.5 lakh crore of cash: Survey: 

System lighter by ₹3.5 lakh crore of cash: Survey: 

Context:

Demonetisation has reduced Rs 3.5 lakh crore of cash from the amounts available in the system before, and digitization has increased across the board, even among the poor, according to second volume of the Economic Survey

Introduction:

• The second volume of Economic Survey, tabled in Parliament of Friday, noted that while the informal sector suffered initially from demonetization, all indicators, such as two-wheeler sales and demand for MGNREGA work, had returned to normal.
• The survey found that while the number of income tax returns had increased sharply, the average income declared had not risen commensurately.

Survey highlights:

• There seems to have been a sharp and equilibrium decline in the use of cash as of July, the holding of cash is about Rs 3.5 lakh crore (20%) less than what might have been the case had pre-demonetisation trends prevailed, consistent with the calculations presented in volume I.
• A definitive judgement can only be passed if current levels of cash relative to GDP persist over time but, so far, reliance on cash appears to have declined sharply.

Impacts:

• The report also said that the effect of demonetization on the digitization of transactions can be divided into three categories: the poor (who are largely outside the digital economy), the less affluent sections (who have acquired Jan Dhan accounts and RuPay cards), and the affluent (who are fully digitally integrated via debit and credit cards).
• There has been a substantial increase in digitization across all categories

Higher growth:

• The growth of taxpayer’s post-demonetisation was significantly greater than in the previous year (45% versus 25%).
• The addition amounted to about 5.4 lakh taxpayer or 1% of all individual taxpayers in just a few months.
•  The average income reported of the new taxpayers Rs 2.7 lakh was not far above the tax threshold of Rs 2.5 lakh, so the immediate impact on tax collections was muted.
• The survey analyzed the effect of demonetization on the informal sector.

Immediate decline:

• A proxy for the informal sector effects is two-wheeler sales, which showed a rapid decline following demonetization but has, after more than six month, almost returned to pre-demonetisation levels.
• The survey analysis show that while demonetization resulted in a contraction in demand for MGNREGA work in the first four weeks following demonetisaton, demand normalized by the tenth week and subsequently grew sharply.
• This effect was prominent for less developed states, which saw a 63% increase in demand for MGNREGA work after the tenth week,