Economic affairs secretary Shaktikanta Das Wednesday chose a tweet to make public a major government decision to not reintroduce Rs1,000 denomination notes. In the wake of demonetisation in November last year, the government had made an announcement to the effect that reintroduction of Rs1,000 notes was in the works and it would be reintroduced after normalcy returned. New Rs2,000 and Rs500 notes were brought in as they were thought to best serve the immediate purpose of the government and people.
The government chose to inject Rs2,000 notes into the system as printing less number of units would enable it to show a bigger figure in value terms. Given the constraints of logistics and infrastructure, replacement of 86 per cent of scrapped currency in a short period would have been impossible. However, going by the size and shape of new Rs2,000 notes had us to believe that they were there for a limited period and would soon be replaced by Rs1,000 notes.
One of the objectives behind note ban was to help stop terror funding and circulation of black money in the country. High denomination notes were thought to have been coming handy for wrongdoers. However, replacement of Rs500 and Rs1,000 notes with Rs2,000 notes made a mockery of this logic. Rs2,000 notes helped the large-scale hoarders since it became easier for them to hoard cash since Rs2,000 notes occupied less space while the common man on the street still went around to search for the change.
From Das’s statement, it is not clear whether the government has put a freeze on Rs1,000 notes for the time being or the idea of reintroducing Rs1,000 notes has been completely shelved. If it is the latter, then the government has taken a major U-turn on this. Immediately after demonetisation, Das had said: “In a few months, Rs1,000 notes in a new colour combination and design will be released.”
However, the bigger question is, if the lower denomination notes are what the government wants to be in circulation, then where was the need to flood the system with Rs2,000 notes post November 8? The Rs2,000 notes had conspicuously failed to mitigate the problems arising from the cash crunch.
India is basically a cash-driven economy. More than 90 per cent of people here carry out their daily business through cash. In fact, many developed countries such as the US that had switched to digital payments long back are reverting to cash now. Digital payments through credit cards create a bubble in the economy.
People tend to spend far too much than what they earn, building up a future risk. The sub-prime crisis illustrated by the fall of Lehman Brothers in late 2008 was the result of a hyped-up economy. Cash may be cumbersome but it is safe and speculation-proof.
Das’s explanation that the government wants to increase the production and supply of Rs500 and lower denomination notes does not add up to the government’s action of introducing Rs2,000 notes. It proves that the government did not think through the process well.
With no Rs1,000 notes in circulation, the gap between lower denomination notes and Rs2,000 notes persists and so also will common man’s troubles, unless the government expects the poor and middle class to dramatically turn to cashless transactions even when there is no infrastructure, safety measures and customer-friendly laws in place.
Recently, in the social media, there were pictures of plastic fingerprints that were used to cast multiple votes in Uttar Pradesh Assembly elections. Such frauds could play havoc with bank accounts of millions of people once fingerprint payments become accepted as has been planned by the Centre.
The realisation that lower denomination notes is key to ease the cash crunch, though late, is good, but had the government thought through the plan well and introduced smaller denomination notes immediately after demonetisation, instead of Rs2,000 notes, much of the pain suffered by the common man could have been avoided.