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The Big, Bold Strides

Demonetisation may be remembered for a few years, but GST will be remembered forever

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Imagine you are the Prime Minister of India. You are about to sign a document authorising withdrawal of 86 per cent of the currency of the country. It crosses your mind that you are dealing with six lakh villages and 125 crore people. And that this may cause extreme hardship to millions of people, rural and urban. And you know it is not humanly possible to imagine the scale of disruption until it plays itself out. But you have to decide. It occurs to you, whether success or failure, you are publicly responsible. Meanwhile, you have made a commitment to reduce black money in the country, and you believe this is a sure way for every note to hit the banking system at least once. You have to decide.You put pen to paper, and decide to deal with the fallout, positive or negative. For its sheer boldness, demonetisation has to be counted as the boldest decision this government has taken.

No matter what famous professors and distinguished people say or have said, for all high-value currency to hit the system and wash itself clean, and to give a one-time jolt to promote digital India, this was an amazing means.That things stabilised quickly within three months, and business is back to normal is big vindication. Nine million new tax payers crawled out of the woodwork and filed their tax returns for the first time after demonetisation was announced.

Demonetisation may be remembered for a few years, but Goods and Service Tax (GST) will be remembered forever. Millions of unorganised business people will register themselves for GST and start paying taxes for the first time, as not doing so will make them uncompetitive for they won’t get input credit. For the first time, we will become one nation economically — it was sometimes easier to import instead of buying from another state in India!

The smartest decision by this government has to be accepting Aadhaar as the platform for a new India, even if it was initiated by the previous government. The Aadhaar platform has not only made digital possible through e-KYC, e-signature, and e-payments but has also helped reduce ghost beneficiaries who were sucking and siphoning what was meant for the poor. I hope the Supreme Court sees the merit in making Aadhaar mandatory for availing all government benefits, of course, with a lead notice period for the citizens to sign up. If you “also” provide benefits to public outside of such an authentication system, you will never be able to weed out the ghosts entirely. So if you truly want to help the poor, help them with a system that stops leaking benefits to the rich and usurious.

An important part of India Inc. is the voiceless small entrepreneur. I have always advocated lower, progressive and differential tax rates for small enterprises.

It’s more equitable; after all, why should small enterprises pay the same tax slab as the large ones! Don’t salaried people with large pay-checks pay higher taxes? Besides, small enterprises largely deal in cash, so you might as well entice them with low taxes. In a great move, the government reduced tax for small companies to 25 per cent. I wish the same for other enterprises, whether proprietorships or partnerships.

Other big breakthroughs and landmark implementations include the fuel-pricing reform (last we heard, the government is mulling daily re-pricing), Direct Benefit Transfer (33 crore people have received subsidies through it, saving the government Rs 50,000 crore over three years), electrification of 4.5 crore rural households (target 2018), and the UDAY scheme.

Finally, in financial services, the big breakthrough was awarding new bank licences. India waited 25 years after nationalisation to issue five licences in 1994. In 2004, two more bank licences were issued. In 2014, two more. Come 2015 — 19 bank licences! 2016- on tap. You see the difference. There’s much more to do on this front, but the direction is inevitable.

Overall, a lot achieved by a government working overtime.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

V Vaidyanathan

V Vaidyanathan is Executive Chairman at Capital First. He is an alumnus of Birla Institute of Technology and Harvard Business School and is a regular contributor on financial and banking matters in India and international forums

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