Though people were inconvenienced by the ongoing demonetisation of high denomination currency notes, they did not create a social unrest, indicating huge support for the move, said Union Finance Minister Arun Jaitley.
The minister’s comments come in the wake of opposition parties vociferously opposing the demonetisation exercise as it has resulted in currency crunch in the economy, slowdown in demand and lay-offs in the small scale industry and trade.
Speaking after inaugurating State Bank of India’s ‘Mobicash Mobile Wallet’, Jaitley said “I must say that the country by and large has welcomed it (the demonetisation move), reacted in a very positive manner.
“Otherwise, to imagine that 86 per cent of the paper currency being withdrawn from the market and then being substituted by alternative currency day in and day out by the Reserve Bank of India through the banking system, post offices and the other methods and inconvenience that it causes, at least in the transitional stage, and still people welcomed it.”
Referring to global studies, which have shown that there are huge costs, both in terms of economy and social costs which a society has to pay, for dealing in cash, the minister explained “When you deal with a lot of currency outside the banking system a tendency to be tax non-compliant is very high.
“And having dealt with large volumes of paper currency all these decades, we lived through a phase where tax non-compliance was not considered to be improper or immoral. Some considered it to be smart.”
And now, following the scrapping of the old Rs 500 and Rs 1000 notes, the country is passing through a transformational period where this (tax non-compliant behaviour) fundamentally is going to change, he added.
Observing that the demonetisation move was based both on an economic rationale as also on an ethical rationale, Jaitley elaborated it eventually will imply that banks will have much larger deposits with them, the cost of these deposits will be low, their ability to support the economy is going to be much higher. More and more transactions are going to be covered by the banking system. And life eventually is going to become very easy.
Emphasising that technology leads to innovations, the minister explained that it leads to cutting of costs and makes life more convenient, the minister underscored that it is almost impossible to defy technology. Those who defy it become irrelevant in the present times.
“And therefore I have no hesitation in agreeing with a viewpoint that this transformation (whereby people take to electronic/ digital transactions) where even during the re-monetisation the extent of paper currency will get reduced but the extent of money available outside the paper currency will increase because the economy will expand.
“The banks will have more. Their ability to support the economy will be higher. The revenue authorities will have more. Government’s ability to spend on developmental expenditure will be much higher. And therefore this substitution will come through various parallel instruments which technology has given us,” said Jaitley.
And today those traders and service providers who missed out on the Point-of-Sale machines will probably find their customers go elsewhere and therefore competitiveness will compel them to make use of the facility, he added.
“And these are changes which are taking place. In fact, I have no hesitation in admitting that at the ground level the change is being widely adopted by people. Those in the political system, across parties, will realise it a little later as to the kind of changes that have taken place,” said the minister.
Jaitley highlighted that once people adopt to this new way of life (digital transactions), all those social and economic costs associated with excessive use of cash itself are going to come down – and that will range from tax non-compliance to bribery to terrorism, the extreme examples. And that is the direction in which the Government plans to take the economy.