Former Department of Economic Affairs secretary Subhash Chandra Garg has said that the new Rs 2,000 notes that were introduced after the announcement of demonetisation on November 8 2016 have primarily been used for hoarding and could be declared illegal tender. He added that withdrawing the Rs 2,000 notes from circulation would not cause any disruption. Garg spoke about the Rs 2,000 note on the third anniversary of demonetisation on Friday.
"It can be demonetised, without causing any disruption. A simple method, depositing these notes in the bank accounts (no counter replacement), can be used to manage the process," he said.
"Cash is still quite high in the system. There is also stocking of Rs 2,000 notes in evidence. The expansion of digital payments is taking place all over the world. It is happening in India as well. The pace is much slower," said Garg in a note. The former economic affairs secretary took VRS after he was abruptly shifted out of the finance ministry.
Garg said that the Rs 2,000 notes account for one-third of currency notes in circulation in terms of value. "A good chunk of Rs 2,000 notes are actually not in circulation, having been hoarded. Rs 2,000 note, therefore, is not presently working as a currency of transaction," he said.
He added that cash is past its prime and very convenient digital modes of payments are replacing cash at a fast pace. However, he pointed out, "India has still a long way to go with more than 85 per cent payment transactions in the country still taking place in cash. The pace has to be accelerated."
Making large cash-based transactions costlier and subject to some tax/charge, making digital modes of payments conveniently available at all times and stopping cash handling in the government completely will help transition our country to less cash and to no cash economy, he said. "China has done it. More than 87 per cent transactions now take place in the non-cash mode as compared to 12 per cent in India," he added.
Implicit subsidies for cash transaction (no charge while depositing cash in banks, not providing notes of less than Rs 10 for transactions) need to be gradually eliminated and fin-tech infrastructure, using the LED model, need to be made universal and cost-free, he added.
Three years ago, on November 8, Prime Minister Narendra Modi made the announcement of banning the use of old Rs 500 and Rs 1,000 notes in an attempt to curb black money, promote digital payments and make India a less-cash economy.