The Economic Survey suggests reduction of individual income tax rates and real estate stamp duties and widening of the tax net to derive full benefits of demonetisation. The Survey has suggested a five point strategy for this purpose: GST with broad coverage to include activities that are sources of black money creation-land and other immovable property-should be implemented; individual income tax rates and real estate stamp duties could be reduced; the income tax net could be widened gradually and, consistent with constitutional arrangements, could progressively encompass all high incomes; the timetable for reducing the corporate tax rate could be accelerated; and tax administration could be improved to reduce discretion and improve accountability.

The Economic Survey says that reducing tax rates and stamp duties, bringing land and real estate into the GST would help derive full benefits of demonetisation and allow growth to bounce back in 2017-18. It also says that action to allay anxieties about over-zealous tax administration is additionally needed for this.

The survey states that demonetisation has had short term costs but would yield long term benefits. These actions would allow growth to return to trend in 2017-18, following a temporary decline in 2016-17, it adds. Following the severe inconvenience faced by the common masses due to the cash crunch caused by demonetisation there has been widespread expectation that the Finance minister would give some relief in the form of lower tax rates or restructuring of tax slabs in the coming budget 2017.

While demonetisation has had short term costs, it can have long term benefits, says the Survey tabled in Parliament today. These benefits may not necessarily become manifest in the next six months but evidence should start trickling in over a one-year horizon and beyond.

According to the Survey the future markers of success include: First, changes in the use of digital payment methods across the three categories of digital access namely, smart phone users, regular phone users and the phoneless, respectively. The early signs are encouraging.

To the extent that digitalisation must be incentivised-- and the incentives favouring cash neutralized--the cost must be borne by the public sector (government/RBI) and not the consumer or financial intermediaries, says the Survey. Incentivisation should be strictly time-bound because as volumes increase digitalisation should become privately profitable. To increase trust in digital payments, cyber security systems must be strengthened considerably. One key need is to ensure inter-operability of the payment system, which will be at the heart of increasing digitalisation going forward, building upon the newly created UPI.

Second, the cash-GDP ratio, which should decline as more saving is channelled through the formal financial system and black money falls. On one estimate of black money, the cash-GDP ratio could decline permanently by about 2 percentage points, according to the Survey.

Perhaps the most important marker of success will be taxes. The number of new income tax payers as well as the magnitude of reported and taxable income should go up over time, says the survey.