The Confederation of All India Traders (CAIT) on Saturday denied that it has called a six-day nationwide strike to oppose Centre’s move to demonetise high-value currency notes, but said it has sought a meeting with Union Finance Minister Arun Jaitley to discuss the current scenario.
“CAIT has been informed about Whatsapp messages stating that we have called a six-day all-India strike,” said Mr Praveen Khandelwal, who is the CAIT National Secretary General, the top traders’ body.
“We strongly reject such messages and inform that we have not called any such strike. However, we have sought an audience with the Finance Minister to apprise him of the current market scenario and augmenting digital payments to ease the situation.”
CII support The Confederation of Indian Industry (CII) came out in support of the Centre’s move.
Chandrajit Banerjee, Director General, CII, said: “After a short period of some pain when the economy adjusts to the sudden withdrawal of cash, CII expects a much stronger economy. India’s cash-dependence is extremely high with a currency-GDP ratio of around 12 per cent compared to 4-5 per cent in other developing countries.”
“As we transition to a greater usage of fintech for payments, spending will rise leading to additional economic growth. This is an economic masterstroke by the Prime Minister and must be allowed time to play out.”
The prevalence of cash use has also made India prone to high inflation, the CII said, adding that corruption and excessive cash use tends to erode the purchasing power of money.
“Lower cash use will have a dampening impact on inflation and this will be a further positive for India’s macro-fundamentals. The Reserve Bank of India will now have more room to cut interest rates as inflation subsides. Already, the bond market has reacted to the news with a reduction in the bond yields” Mr. Banerjee said.
Banks’ liquidity The Rs.1,000 and Rs.500 notes amounted to Rs.14.2 lakh crore as of March 2016, or about 85 per cent of total currency in circulation, the CII said, adding that if this is converted to current and savings deposits, there will be an increase in banks’ liquidity. This is also a great opportunity to transition to a “plastic economy”, where there is a prevalence of debit and credit cards for transactions, the CII said.
Scrutiny fears The industry body said that in all likelihood, a fair proportion of the Rs.14 lakh crore in high-denomination currency will not return to the banking system, for fear of accounts being scrutinised.
“If one assumes that about 20 per cent of the cash does not return to the system, this would amount to about Rs.3 lakh crore or $42 billion. This is a reduction in the RBI’s liability to the public, allowing it to print a similar amount of fresh money or transfer the gain to the government.
“The biggest gain from this move will be greater formalisation of the economy. Currently, the costs of informality are evident in low tax base which impacts government revenues, lack of economic control through monetary instruments, and lower economies of scale,” it said.
India’s tax base is low and its tax to GDP ratio needs to increase from the current level of 16.6 per cent, which is much lower than about 21 per cent in other emerging economies, the CII said.
It added that less than 30 million Indians filed personal income tax with more than half of these paying no tax. The existence of a parallel economy provides unfair competition to organised industry which pays taxes and complies with standards, according to the CII.