Impact of GST and Demonetization on Government Finances, 2 Years On

It appears that the intended effects of the two-pronged strategy of implementing the Goods and Service Tax (GST) and Demonetization of Rs. 500 and Rs. 1000 bills may have been claimed as being far greater than they have actually proved to be. The reason for this assessment seems to be due to the fact that the government coffers seem to be set to run short of its fiscal deficit target for this financial year ending in March 2019. With some of the key details of the GST system still being tweaked to ensure that maximum revenue generation is realized, along with a recent call to audit the accounting software of all large-scale service providers like banks and telecom service providers, it seems certain that the target of fiscal deficit being 3.3% of GDP will not be the case at the end of this financial year.


On the subject of Demonetization, the primary claim by the Modi Government was that it was a means of ferreting out black money, a claim that seems to have gone unrealized as more than 99% of all demonetized notes returned to the system. The best case scenario according to a research paper published by the Centre for Development Studies (CDS) earlier this year shows that no more than 12% of black money may have been impacted by this move that caused a temporary but severe economic disruption when it was implemented.


If there is some positive news from the GST system of taxation coming into effect, it is that the direct taxes collected have sown solid figures by bringing more tax payers into the official fold. However, this increase can be attributed to the Income Disclosure Scheme 2016.

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