BUSINESS

Move to cashless economy a key motive behind notes ban

emptying wallets:Long-term gains will bring about a major metamorphosis in the way the financial affairs are managed in India.— FILE PHOTO: Mohammed Yousuf

emptying wallets:Long-term gains will bring about a major metamorphosis in the way the financial affairs are managed in India.— FILE PHOTO: Mohammed Yousuf  

The withdrawal of 500 and 1,000 rupee notes may have come as a bolt from the blue. But it appears to be a part of a calculated process set in motion way back in January 2014.

The fulcrum of that larger process revolves around addressing the twin menace afflicting the decision-making exercise of the economy managers.

The unaccounted pockets of the economy and illegal notes together combine to render policy initiatives ineffective and redundant.

The Raghuram Rajan-led Reserve Bank of India had sought to crack the whip on this way back in January 2014 by deciding to withdraw completely from circulation all bank notes issued prior to 2005. It provided enough time-window for the public to exchange these currencies.

The apex bank had said then that these notes were legal tender but must be exchanged for new ones from banks.

The idea then was to replace the older notes with new ones with hugely beefed-up security features. By withdrawing these notes, the RBI, it was pointed out, wanted to weed out fake notes in the system if any and also ensure that faking becomes difficult and costly by introducing new notes with tighter security features.

The withdrawal of notes issued prior to 2005 clearly aimed at ending the fake note menace which had far greater implications from security point of view of a nation. The recent demonetisation of Rs. 500 and Rs. 1,000 notes must be read as a continuation of this larger process, sources said.

“It is not about how much black money government could catch. It is about how much unaccounted money this could bring into the system,’’ pointed out a monetary policy watcher, who declined to be quoted. This move also must be read in tandem with several other initiatives of the authorities - both monetary and fiscal - to force people to come on board and embrace the formal system.

A series efforts to have a connected web by linking Aadhar number, PAN number and bank account and the like have all been carefully calibrated to push a steady movement towards an organized system.

The prevalence of a vast space outside the organised sector, it is pointed out, is making things difficult for the policy planners to offer precisely workable prescriptions.

On many an occasion, the RBI bosses have stressed this limiting factor.

Given all these, the de-monetisation cannot be treated as an isolated exercise but must be viewed as a larger effort to push the society into a cashless one.

Viewed from a holistic perspective, the latest move should be judged by the efficacy or otherwise of the system to capture all sorts of financial transactions – small and big ones alike. Hopefully, this could help bring in a sense of fairness and equity in the economy. At the same time, one expects this to facilitate policy formulators arriving at reasonably accurate diagnosis for the ills of the economy in a dynamic situation.

Short-term pains in the transition process have already thrown up a host of logistical imponderables, pushing the BJP Government at the Centre in a tight corner. Notwithstanding the transitory political risks in the move, the long-term gains are bound to bring about a major metamorphosis in the way the financial affairs are managed in India.





Demonetisation is not an isolated exercise but a larger effort to push society into a cashless one



Recommended for you