Rs 2,000 Notes Being Hoarded, Should Be Demonetised: Subhash Chandra Garg
Digital payments a global phenomenon, it’s happening in India as well but at a much slower pace, Subhash Chandra Garg says.
On the third anniversary of demonetisation, former Economic Affairs Secretary Subhash Chandra Garg said the Rs 2,000 note were being hoarded and should be demonetised.
The high-value currency note was introduced after Prime Minister Narendra Modi on Nov. 8, 2016, declared old Rs 500 notes and Rs 1,000 notes invalid—wiping out 86 percent of the currency in circulation by value.
"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," Garg said in a note.
The former economic affairs secretary voluntarily retired from government service after he was abruptly shifted out of the finance ministry.
Garg said the Rs 2,000 notes account for about one-third of the currency in circulation in value terms.
"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therefore, is not presently working as a currency of transaction," he said, advocating that they may be demonetised or withdrawn from circulation.
"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.
The demonetisation decision three years ago was aimed at lowering currency in circulation but almost all of the banned notes came back into the system.
Garg said cash is past its heyday, although for a very different reason it is making a comeback. "Very convenient digital modes of making payments are replacing cash at a fast pace," he said. "India still has a long way to go with more than 85 percent 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 India to less-cash and to no-cash economy, he said.
Also, the Reserve Bank of India needs to move beyond the banks and involve all other payment infrastructure participants in this business of making payments digital, he said.
The former bureaucrat said cash has severe limitations, but for small transactions, it is still quite competitive and convenient. The "trick is to make the non-cash mode of transaction as, if not more, convenient and as, if not less, costly as cash mode," he said. "China has done it. More than 87 percent transactions now take place in the non-cash mode as compared to 12 percent in India."