Demonetisation’s Link to Economic Slump: Was Data ‘Concealed’?

Camera: Sumit Badola
Producer: Indira Basu & Ashutosh Bhardwaj
Transcription: Kanav Bali
Video Editor: Ashutosh Bhardwaj

Senior financial journalist, Puja Mehra, questioned in an opinion piece in The Hindu on 22 August, as to whether “a task force report that recommended a new law to replace the Income Tax Act, 1961” was “suppressed because it inadvertently provided factual evidence for the debilitating impact of demonetisation on the formal corporate sector”.

Puja Mehra tells The Quint what she learnt from the task force report originally drafted to push for a new I-T law to replace the old, outdated one that currently exists. Below are excerpts from her video op-ed.

What Does the Task Force Report Say About Impact of Note Ban on Economy?

A report not at all on demonetisation, this is a report that was being drafted by a task force that was appointed in 2017 by the Finance Ministry, to recommend a new I-T law. In September 2017, PM Modi had announced that India needs a new I-T law because, as you are aware, the I-T law in India, was written in 1961. So, it is now more than 50 years old, and no longer in line with the needs of the contemporary economy and, in fact, in the last ten years, there have been many attempts by successive governments to redraft the I-T law to make it more in line with the needs of the modern economy. And following up on the PM’s address in 2017in November, the Finance Ministry had appointed a task force to recommend a new I-T law. This particular task force has analysed the I-T returns filed by companies so that they could make a recommendation for a new direct tax law based on trends emerging from the real data that comes out of the returns filed by companies, and, by chance, one of the data pieces that pertained to the demonetisation year showed that companies had disclosed investment figures... the aggregate of all of the investments disclosed by companies represents a 60% fall over the previous year. The report in fact, does not use the word “demonetisation” anywhere. The report has given data for investments for the previous 7 years and it is in the demonetisation year that such a big drop — a drop of over 60% over the previous year — shows up. And this data was collated, analysed, and put in the report not because demonetisation was being analysed but because a new I-T law was being drafted.

What Impact Has Investment Slowdown Had on the Economy?

The investment slowdown in the Indian economy began in the year 2011-12 when PM Manmohan Singh was heading the UPA government and Mr Pranab Mukherjee was his Finance Minister. In the aftermath of the global financial crisis of 2008 there was a global economic slowdown which had repercussions on the Indian economy, the Indian growth slowdown, and the projects that were designed and started by companies with the assumption of growth, sustaining at levels that India had seen in the pre-global financial crisis era, which was more than 8%. Those growth projections were no longer valid and the projects that had been started with the assumption that that kind of growth will continue now, were not as viable, because that basic assumption was no longer true. In addition, there was an added problem because of the policy paralysis in the UPA government in the phase when there was a lot of allegations of corruption and scams such as the 2G ‘scam’. When project clearances were delayed, government officials were not approving projects, clearances were held up, projects got stalled, but at the same time, loan repayments had to be done. So, on the one hand growth was slowing down, on the other hand projects were not coming on steam, and yet, loan repayments had to be made, and therefore, these projects were becoming economically unviable.

(Puja Mehra is a Delhi-based journalist. Her first book, The Lost Decade (2008-18): How India's Growth Story Devolved Into Growth Without a Story, has been published by Penguin Random House. She tweets at @pujamehra. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)