Head of Niti Aayog, Amitabh Kant, has conceded that just 1% of Indians pay income tax, making India among the worst diversified tax bases anywhere in the world. There have been expectations of India’s GDP growing from the current level of $2 trillion to a level of $10 trillion by 2030. However, that is unlikely to happen if cash transactions accounted for a bulk of the transactions and a vast majority of Indians remained outside the ambit of income tax. One of the key purposes of the demonetization exercise is to push people more towards digital transactions so that audit trails can help establish better compliance with tax norms.

According to Macquarie, India could see GDP growth in the range of 8-9% once the dust around the demonetization debate settles down. Macquarie looks at the demonetization exercise and the push towards digital as the third and logical step in the reforms process. After opening up the economy and encouraging private partnership, the next challenge for the Indian economy was to widen the tax base and enforce better compliance. Macquarie is not overly worried about the FII selling in the months of November and December as it is more of an EM wide phenomenon rather than something that is unique to India.

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