Finance Minister Arun Jaitley said the recent big reform steps of demonetisation and GST implementation are already showing benefits in terms of increased compliance and widening of tax base.

Addressing the 7th edition of Delhi Economics Conclave 2017, Jaitley said generation of cash has become difficult since demonetisation (November 2016) was undertaken and expressed hope that political system would get funded with “cleaner money” in the coming days.

For the last 70 years, India's democracy has been funded by invisible money, Jaitley noted and pointed out that government was actively looking to reform the situation (through proposed electoral bonds).

Jaitley outlined three significant steps that the government has already undertaken to address the menace of unaccounted money. First, there was a specific legislative change to penalise parking of unaccounted funds outside the country and not declared to tax authorities. “One easy format was shell companies. The standard operating procedure was to use the benami and shell companies route to take monies abroad and indulge in round tripping of tax avoided money. The sooner this business of routing the money through Shell companies is collapsed, the better it is for the formal economy,” Jaitley said.

Jaitley said that benami transaction prohibition law, which was in limbo since its enactment in 1988, is now being enforced from 2016 and has sent shivers among those who have amassed property through the benami route.

The third step, according to Jaitley, is the enactment of Insolvency and Bankruptcy Code (IBC). “We can't have a situation where businesses operate on the premise that bank funded money need not be repaid to the banks”, Jaitley said, noting that the IBC was expected to correct that situation.

Meanwhile, in a separate session, RBI Deputy Governor Viral Acharya said post-demonetisation there has been an increased flow of money into financial savings instruments such as mutual funds and insurance products. There has been a non-linear shift since November-December last year, he added.

Former IMF Chief Economist Kenneth Rogoff said that demonetisation was flawed in some respect as it phased out high denomination notes overnight. The biggest problem that India faced was it did not have nearly enough new notes in hand to exchange the old ones, he said.