Wednesday, February 21, 2024

Exit of big notes

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Better late than never! The halt to circulation of Rs 2000 currency notes, announced by RBI this past week was in the pipeline. For, a wrong decision taken under pressure in 2016 lived out its time before it was effectively rescinded in a quiet manner now. The very purpose of the note ban announced by Prime Minister Narendra Modi in November 2016 was majorly defeated by the flooding of these highest denomination notes in the market. If the principal aim of the high-value currency note ban of Rs 500 and Rs 1,000 notes was to curb counterfeiting and black money hoarding, the introduction of the Rs 2000 notes made these jobs easier for those who indulged in such notorious acts. The Pakistani angle was very pronounced too. For the government and RBI, the printing of Rs 2000 notes was a matter of urgency as banks and markets were starved of currency notes for circulation in the immediate aftermath of the notes ban. RBI says it had stopped the printing of the Rs 2000 notes by 2018-19 and that some 89 per cent of these notes had been released prior to March, 2017. This amounted to an admission that a wrong step had to be taken in the introduction of this high-value currency. Under these circumstances, the government and RBI would have been well-advised to take one more risk and withdraw this currency long ago in the long-term interests of the nation.
The nation needs to wait and see how the present scenario would pan out. Those ruling the black money market are big sharks and they are generally smarter than those who man the governments in a massively corrupt nation. In 2016, these sharks found several loopholes and exploited them to their advantage. Many of them in a jiffy converted their hoarded money into gold by hurried or even back-dated purchase of gold etc or by manipulations with banking managers, temple managements etc. With the steady rise in prices of gold, those who purchased gold then benefited hugely in the coming years. This time, a rule is that only 10 notes can be exchanged for other notes at a time in a bank; and rules are also in place wherein larger transactions in any deal would require quoting of PAN number. Those who resort to alternative means to unload the hoarded money would eventually be made to explain the source from which they made the money and they will have to pay the taxes thereof. The government is also making efforts since 2016 to encourage digital payment vis-à-vis currency transactions. Impressively, this is happening now even in retail purchases. That is the ultimate way to check the menace of counterfeit currency and black money hoarding.

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