India's Informal Economy Has More Than Halved; Three Out Of Four Goals Of Demonetisation Achieved: Report

According to SBI group chief economist Soumya Kanti Ghosh, India’s informal economy has reduced to 20 per cent of the total GDP now as compared to 50 per cent of the same some years ago.

This figure is apparently comparable to that prevalent in Europe and in fact quite better than the Latin American nations where the size of the informal economy is 34 per cent of their GDP.

“The rise in GST collections despite the GDP shrinking clearly shows that formalisation has ensured fiscal policy can be used as a counter-cyclical fiscal policy tool when revenue collapsed due to the pandemic,” Ghosh was quoted in a report by the Times of India (TOI).

He added, “This is a clear break from the past as fiscal policy has always been used as a pro-cyclical fiscal policy tool in India.”

Apparently, recent data suggests that the revival in economic activities has not been proportionate with the increase in the currency in circulation.

The high level in digitisation has resulted in the economy having the capacity to grow without the corresponding increase in cash. On similar lines, the country seems to have performed considerably well on three of the four intended objectives of demonetisation as well.

Furthermore, there has also been a drop in fake currencies. Counterfeit notes detected continued to fall from 3.1 lakh in FY19 to 2.9 lakh in FY20 and 2 lakh in FY21.