How will higher denomination note help reduce black money: P Chidambaram

NEW DELHI: Former Finance Minister P Chidambaram has said the Modi government that demonetised Rs 1,000 and Rs 500 notes should ensure the exchanges of notes quickly and efficiently without causing harassment to the common people. He said the government’s “real test” will begin on Thursday when people reach banks, seeking to exchange their notes.

He wondered why the Modi government adopted a method that was a proven a failure after the Morarji Desai government demonetised Rs 1,000, Rs 5,000 and Rs 10,000 even as he termed as a “puzzle” the government’s move to introduce currency notes of Rs 2,000 and demanded the regime to explain the logic.

Though he did not directly mention the name of the UPA regimes, Chidambaram indicated as much when he said “many past government” too had contemplated similar action but the idea was dropped as “the economic gains (of withdrawing notes) were not too great.”

He asserted if “RBI form is made mandatory for housewives and small traders, it will be pure harassment and the Congress will condemn it.” Addressing a press meet from the AICC podium, Chidambaram said “we support the objective of government to stamp out black money. But the method they have adopted raises questions... The move has come as a bolt from the blue for the common man… The move may cause initial contraction and some disruption of economic activity.”

“Introduction of the Rs 2,000 note is a puzzle. How will this help in preventing generation of black money?” Maintaining that the introduction of the new series of notes is estimated to cost Rs 15,000-20,000 crore and “the economic gains of demonetisation should be at least equal to that amount”, he said the economic wisdom of the government’s decision will be tested on three parameters: The present cashto-GDP ratio is 12%.

Will it come down to the world average of about 4%? The value of the high denomination notes in circulation is about Rs 15 lakh crore. Will that value come down? Will gold imports surge indicating that unaccounted income/wealth may seek refuge in bullion and gold jewellery?