NEW DELHI: On Friday night, the Reserve Bank of India (RBI) surpsiesed the citizen by announcing a withdrawal on currency notes worth Rs. 2,000 after September 30.
Opposition parties have harshly criticised the RBI's decision, but the BJP-led federal government has steadfastly backed it. The former Chief Economic Advisor has listed six benefits of the removal of Rs. 2,000 notes from the Indian market amid the political debate over the issue.
Dr. Krishnamurthy Subramanian, an ex-CEA, praised the decision to withdraw the Rs. 2,000 notes as a whole. The previous Chief Economic Advisor remarked as follows:
1. The withdrawal of the Rs. 2,000 denomination will stop money hoarding. The action will aid in recovering a significant percentage of the Rs. 3.6 lakh crores in currency presently in circulation (CiC) in the form of Rs. 2000 notes (see the circular below, especially the highlighted section). All of these cases of cash hoarding involved Rs. 2000 notes, as we have witnessed in previous searches where mountains of cash stashed using the denomination were recovered. The Rs. 2000 note is now mostly utilised for money hoarding as its use as a medium of commerce has drastically decreased. According to the 80-20 rule, even if 80% of people are lawfully storing this money in Rs. 2,000 notes, they are probably only storing 20% of the total value. Hoarders, who might hold 80% of the value ($3 lakh crores) in Rs. 2,000 note storage, make up 20% of the population.
2. Physical currency notes, particularly those worth Rs. 2,000, are playing a smaller role as more and more people make digital payments.
3. The Rs. 500 note can be used as a medium of exchange to "seamlessly substitute even the minimal use of Rs.2,000 note for this purpose" when combined with digital currency.
4. According to a BCG analysis, the number of digital transactions is predicted to increase thrice between now and 2026, which would reduce the necessity for the Rs. 2000 note as a medium of exchange even further in the years to come.
5. "Most crucially," he added, "since the RBI has stated that the Rs. 2000 note will continue to be legal tender (even beyond September 30, 2023, in my current understanding, though the RBI may need to clarify this), legitimate people holding the Rs. 2000 note can swap even after September 30, 2023.
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