Demonetisation is truly turning out to be a big bang reform that has speeded up digitalisation of the Indian economy by three to five years, if not more. But having said that, there is no doubt it's one of the most disruptive innovations undertaken in India after Independence.
The budget must break new ground by announcing measures to upgrade digital infrastructure across India.
Even as the process of remonetisation is being fast-forwarded, the upcoming Union Budget 2017-18 must break new ground by announcing measures to upgrade digital infrastructure across India. With the government keen to move the economy towards a "less-cash" or cashless society, merchants and consumers must be encouraged to transact on non-cash, online platforms. This will need a focussed approach because the old habits of transacting through cash will not be given up so easily. Fiscal incentives will be a good way of encouraging people to transact online.
Digital India is a laudable initiative. Of course, the infrastructure should be in place to make this a success story. For example, we need to improve digital literacy and connect cities, towns and villages with high-speed internet networks so every citizen is empowered with access to a mobile broadband connection. In fact, I believe access to online services must be treated as a fundamental right. Such initiatives will move a large portion of cash transactions to the formal economy.
Focus on physical infrastructure and allied services
The economy has faced a general slowdown during the past quarter. To energise sentiment, we need to see visible action on government initiatives such as Make in India, Skill India, Start-Up India and Stand-Up India. The government must announce steps to benefit these initiatives as well as tone up physical infrastructure. We need good roads and better connectivity with rural regions, where around 65% of Indians live. The country also needs world-class seaports and airports.
Ensure GST rollout in July
GST is another big bang reform that everybody has been eagerly awaiting for years. It's a blessing in disguise that GST implementation has been pushed back to 1 July. This will help businesses and the overall economy recover from the shakeup due to demonetisation. Clear, uniform taxation for all goods and services is extremely important. The long-term benefits from this will be tremendous.
Drive digital modes for tax trail
India should be a tax-compliant society. At present, not even 3% of people pay any income tax. I have little doubt that if tax rates are rationalised and reduced, compliance levels will rise. Transactions worth one trillion dollars are done in the country annually. Of these, barely 10% are on digital platforms. In the coming days, as the government incentivises digital transactions, it is clear that mobile wallet providers will play a larger role. A higher number of online transactions will lead to more taxes and revenues for the government. Without a doubt, this augurs well for the Indian economy.
A higher number of online transactions will lead to more taxes and revenues for the government.
The country is poised for high growth. By 2030, it could become the world's third-largest economy after the United States and China. And the upcoming Union Budget on 1 February could help kick-start that process if the government introduces bold fiscal and policy reforms. Demonetisation may seem like a dark cloud to some, but the Union Budget 2017-18 could prove it has a silver lining.