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Note ban slowed down GDP by 2% points in Q4 2016, says economist Gita

Press Trust of India

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New Delhi: The government’s note ban decision shaved off economic growth by at least 2% points for the October-December quarter of 2016 in which the demonetisation move was effected, according to a research paper co-authored by eminent economist Gita Gopinath.

India-born Harvard professor Gopinath, 46, is set to take charge as the chief economist at the International Monetary Fund (IMF) next month.

The paper further said that districts experiencing more severe demonetisation had relative reductions in economic activity, faster adoption of alternative payment technologies and lower bank credit growth.

 

“Our results imply demonetisation lowered the growth rate of economic activity by at least 2 percentage points in the quarter of demonetisation,” said the research paper titled ‘Cash And The Economy: Evidence From India’s Demonetisation’.

The paper is published by US-based National Bureau of Economic Research (NBER) and its co-authors include economist Prachi Mishra, who had headed the strategic research unit at the RBI, Abhinav Narayanan, manager-research at RBI, and Harvard professor Gabriel Chodorow-Reich is the lead author.

According to the paper, note ban also led to a decline in nightlights-based economic activity and a 3 percentage points or more drop in employment generation in November and December of 2016 relative to the counterfactual path.

“The cross-sectional responses cumulate to a contraction in employment and nightlights-based output due to demonetisation of 2 percentage points and of bank credit of 2 percentage points in 2016 Q4 (calendar year) relative to their counterfactual paths, effects which dissipate over the next few months,” the paper said.

Night lights satellite imagery has been seen as an alternative means for measuring economic activity. Night lights-based data rely on a scientific model for reaching at an estimated total economic activities, including formal and informal, for countries and states of the world.

The Indian economy grew at 7 per cent in the third quarter (when demonetisation was implemented) of 2016-17 and at 6.1 per cent in the subsequent quarter.
In 2017-18, the Indian economy grew by 6.7 per cent.

In the six quarters before demonetisation, growth averaged 8 per cent and in the seven quarters after, it averaged about 6.8 per cent (with a four-quarter window, the relevant numbers are 8.1 per cent before and 6.2 per cent after). The paper also noted that cash continues to serve an essential role in facilitating economic activities in modern India.

It also pointed out that there may be longer term advantages from demonetisation that arise from improvements in tax collections and in a shift to savings in financial instruments and non-cash payment mechanisms. “Evaluating these long-term consequences requires waiting for more data and an empirical strategy suited to the study of longer term effects,” it said.

Prime Minister Narendra Modi in a televised address on November 8, 2016 had announced to ban the Rs 500 and Rs 1,000 currency notes from the system aimed at curbing black money, fake currency and terror funding, among others.

This policy made 86 per cent of cash in circulation illegal tender overnight, with new notes gradually introduced over the next several months.

The authors used a new household survey of employment and satellite data on human-generated nightlight activity to measure demonetisation’s effects at the district level Gopinath is the second Indian to be appointed to the role of chief economist after Raghuram Rajan.


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CBDT identifies 20.4 million non-filers, asks I-T dept to take action

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New Delhi :The Central Board of Direct Taxes (CBDT) has directed the Income-Tax Department to initiate penalty proceedings by June 30 against non-filers and ‘drop filers’ of tax returns.
According to the non-filer monitoring system (NMS) of the I-T department, data for 20.4 million non-filers has been obtained between 2013 and 2017, of which 2.5 million are those who are inconsistent — popularly known as ‘dropped filers’.
“We are issuing notices in all the non-filer/dropped filer cases across the country, and proceedings shall be initiated accordingly in the relevant cases,” said an assessing officer.
Typically, the penalty for non-filing is pursued under Section 271F of the Income Tax Act, and that for late filing under Section 234. If an assessee files returns after the due date of August 31 but before December 31, it will attract a penalty of Rs 5,000. For those who file returns after December 31, the penalty rises to Rs 10,000. However, there is an exemption for small taxpayers — if the total income does not exceed Rs 5 lakh per annum, the maximum penalty will be Rs 1,000.
The tax department has initiated action based on the NMS database, which has identified such non-filers and dropped filers. The said data has been shared with assessing officers. This information may be acted upon as efficiently as possible to widen the tax base, said the officer cited above.
chart The NMS data shows a sharp increase in non-filers since 2013. In 2014, the number of non-filers was 1.22 million, which surged to 6.75 million in 2015.
The number of dropped filers in FY18 stood at 2.52 million, down from 2.83 million in FY17.
“If the existing database is acted upon, coupled with optimum tax administration, and if legislative impetus — such as periodical review of provisions related to exemption, deductions, tax incentives, tax collection from the third parties, and taxing new areas such as digital economy — is provided, there will be considerable increase in the tax base,” said a senior tax official.
An assessing officer can initiate proceedings for prosecution from three months to two years, along with a fine. The period could be extended if the taxable income exceeds Rs 25 lakh.

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RBI releases draft framework for regulatory sandbox to help fintech space

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Mumbai :The Reserve Bank of India (RBI) released a draft ‘Enabling Framework for Regulatory Sandbox’ in order to support the country’s rapidly growing fintech space.
The sandbox will begin the testing process with 10-12 selected entities focusing on financial inclusion, payments and lending, digital KYC, etc. The cohorts (end-to-end sandbox process) may run for varying time periods, but should ordinarily be completed within six months, said the RBI.
A regulatory sandbox usually refers to live testing of new products or services in a controlled/test regulatory environment for which regulators may (or may not) permit certain regulatory relaxations for the limited purpose of the testing.
The regulatory sandbox would be within a well-defined space and duration where the RBI will provide the requisite regulatory guidance, so as to increase efficiency, manage risks, and create new opportunities for consumers.
The draft guidelines highlight the clear principles and role of the proposed regulatory sandbox, its pros and cons, the reasons for setting up the regulatory sandbox and expectations of the RBI from the sandbox. The central bank has invited comments on the draft guidelines from stakeholders by May 8.
The draft framework was released on the recommendation of an inter-regulatory working group set up by the RBI in July 2016 to review the regulatory framework and respond to the dynamics of the rapidly evolving fintech scenario.
The target applicants for entry to the regulatory sandbox are fintech firms which meet the eligibility conditions prescribed for start-ups by the government. The entity also needs to have a minimum net worth of ~50 lakh, according to its latest audited balance sheet.
The RBI said that it shall bear no liability arising from the regulatory sandbox process and any liability arising from the experiment will be borne by the applicant as a sandbox entity.
The focus of the regulatory sandbox will be to encourage innovations where there is absence of governing regulations or a need to temporarily ease regulations for enabling the proposed innovation or the proposed innovation shows promise of easing/effecting delivery of financial services in a significant way.
The applicants should highlight how it would address an existing gap in the financial system through its product/service and demonstrate that there is a relevant regulatory barrier in its deployment.
The guidelines listed out the various entities that can apply for the sandbox process as well as the ones that won’t be eligible for the sandbox.

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Mallya asks SBI to disclose ‘legal fees’ spent to recover funds

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New Delhi: Fugitive businessman Vijay Mallya on Friday urged Indian media to file an RTI against the State Bank of India (SBI) to ascertain how much money it has spent on the legal fees of the lawyers while recovering money from him in the United Kingdom.
“Whilst media love sensational headlines, why doesn’t anybody ask the PSU State Bank of India under RTI on how much they are spending on legal fees trying to recover money from me in the United Kingdom (UK) when I have offered 100 per cent payback in India,” Mallya tweeted.
To further substantiate his point, he said: “Assets belonging to me in the UK were sold and the costs of sale were almost 50 per cent of value. The remaining assets yet to be sold won’t cover legal costs. So what’s this all about? To enrich UK Lawyers?”
He also demanded an answer from the public sector bank on the same lines.
Mallya also accused the SBI Lawyers representing SBI in the UK of “making presentations on their accomplishments against him” at the “cost of Indian taxpayers’ money.”
Mallya is facing trial for alleged fraud and money laundering amounting to Rs 9,000 crore.
On April 8, a United Kingdom court had denied permission to the liquor baron to appeal against his extradition order to India to face trial for alleged fraud and money laundering amounting to Rs 9,000 crore.

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