Indian government rushes to defend bank note ban as doubts grow

by Garry Watts September 2, 2017, 0:24
Indian government rushes to defend bank note ban as doubts grow

Banks had been flushed with deposits post demonetisation, which forced the RBI to offer a short-term money-parking window to the banks under reverse repo operation. Former finance minister P Chidambaram, in a series of tweets, chastised the government and said the RBI should be "ashamed for recommending demonetisation".

The Centre further said that funding of terrorist and naxalite groups had "stopped nearly entirely" since the note ban.

Besides, new Rs 500 and Rs 2,000 notes, the RBI has also circulated new Rs 200 notes last week.

But in comparison to the frequent references to corruption, black money, fake currency and terrorism or terror financing, this looked to be one of the least important benefits that the prime minister sought to project through demonetisation.

On Finance Minister Arun Jaitley saying that tax payers" base has expanded after demonetization, Sharma said: "If he thinks that he is a great economist, it is the biggest tragedy.

Chidambaram also wondered if demonetisation was "a scheme created to convert black money into white?". The number of electronic transactions declined later as more cash became available and the lack of e-spending infrastructure began to tell, as per the report.

Das was reported to have also said that once the final counting is done, he expects the figure to be much lower. "The economist deserves a Nobel Prize!"

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Another stated aim of the demonetisation drive was to increase the tax base. It said that of the Rs. 15.44 lakh crore taken out of circulation, Rs 15.28 lakh crore had returned to the system by way of public deposits.

The growth has also been impacted by the imposition of Goods and Sales Tax (GST) that was imposed by the government on July 1.

There have been various measures taken by both the Government of India and RBI to bring down the cost of digital transactions in order to push people in operating as cash-less economy. The problem has not yet been sorted out as the government has introduced so many riders in the name of controlling black money that legitimate funds are still jammed in many banks.

None of the measures that PM Modi had promised with the ban on high currency notes, put into effect in November previous year, had been realised, Congress senior spokesperson Anand Sharma said. According to reports from The Indian Express, RBI has released a report confirming that out of the 15.44 lakh crore worth of old notes that were present in the market during the demonetization period, Rs 15.28 lakh, crore worth of old notes had been returned to the bank.

Citing the RBI report for 2016-17, "which gave the lie to the tall claims of the Union government", Mr. Narayanasamy said 99% of the junked notes had been replaced. The general consensus was that anywhere between Rs 50,000 crore and Rs 3 lakh crore may not come back. "The fallout of demonetisation is on predicted lines... the fact that money got deposited in banks doesn't make it legitimate money", Jaitley claimed.

According to the report issued by the RBI, for the financial year, 2016-17 now total of 3285 million notes of 2000 are in circulation, worth the value of 6571 billion rupees and 5882 million notes of 500 are in circulation worth the value of 2941 billion rupees.

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