Finance Minister Arun Jaitley with Transport and Highways Minister Nitin Gadkari in New Delhi on Thursday. PTI Finance Minister Arun Jaitley with Transport and Highways Minister Nitin Gadkari in New Delhi on Thursday. PTI

With developed economies leaning towards protectionism, finance minister Arun Jaitley said that if such a trend impacts global trade, then economies will become inefficient and result in shrinking of GDP of various countries across the world. “Developed countries have turned protectionist. That’s a dangerous trend. If that trend has an impact on global trade, whether movement of men or goods and services, (and it) could actually make economies more inefficient, could end up reducing GDPs in various countries,” he said at the Assocham annual meeting on Thursday.

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Jaitley said that the demonetisation of Rs 500 and Rs 1,000 notes forced “extraordinary large amount of cash, inherently anonymous, into the banking system”, that will eventually help in integration of informal economy into formal economy. “Having been forced into the banking system, it compels even the non-compliant to spend excessively through either the banking system or digital mode. This is eventually going to lead to the squeezing of the informal economy and integration into formal economy,” Jaitley said.

He added that the formalisation of Indian economy will make India a more tax-compliant society and help in having reasonable rates of taxation. “This will eventually lead to larger transactions through banking system, more money into banking, more ability to lend at more reasonable rates… More taxes mean more reasonable rates of taxes,” he said.

The first taxation reform that India requires is that people should pay taxes, he said. “We are one of the most non-compliant societies in the world. Why should a compliant taxpayer share the burden of non compliant? It creates an aberration. It will not be an exaggeration to say we are one of most non compliant countries in the world,” he said.

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He added that demonetisation along with the proposed Goods and Services Tax (GST) will help squeeze informal economy and bring down taxation rates to reasonable levels. “It will be a more efficient system that will reduce tax evasion and reduce harassment. Together with demonetisation, it will lead to squeezing of the informal economy and more taxes, which means more reasonable rates of taxation,” he said, adding that the combination of GST and demonetisation will create a new normal.

Jaitley said use of Aadhaar unique identification number has become a launching pad for rationalisation of subsidies by directing it to the needy rather than the undeserving. The finance minister also said that the nation needs to get rid of discretions and arbitrariness in decisions of allocation of resources including coal blocks and telecom spectrum. “It’s image that it’s a corrupt society… We were able to substantially write it off if not completely,” he noted.

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