Even the staunch supporters of Modi and his government are finding it difficult to explain the circulation of Rs 2000 notes, as an ‘answer’ to black money. Every opposition leader and public aggrieved with the demonetisation move has questioned the introduction of Rs 2000 notes. If at all the Modi government wants to fight the black money, then why introduce a high value currency, which is easier to hoard. One of the weak arguments the government has been is that the Reserve Bank of India (RBI) originally wanted Rs 5000 and Rs 10000 notes to contain inflation. It was the government that took a call and instead stuck to Rs 2000 only. However, for common people, who are standing firm behind the government’s move, it is hard to dispel the claim that Rs 2000 notes will lead to more hoarding and black money.
The Rs 2000 notes are almost useless. In day-to-day life, a common man hardly makes any transaction even to get the change of Rs 1000 before it was banned. Yet, it was easier for the shopkeeper to give the change for Rs 1000 because of the presence of Rs 500 notes. The shopkeeper had to spare less Rs 100 notes while giving change for Rs 1000. Now, if a person buys something worth Rs 150 and has only Rs 2000 note, the shopkeeper is very unlikely to be able to return 18 hundred rupee notes plus one Rs 50. But the situation might ease in coming days as the RBI has pushed a huge number or Rs 100 and Rs 20 notes into the banking system.
Another explanation of printing Rs 2000 notes instead of new Rs 500 and Rs 1000 notes is a bit technical. Had there been new Rs 500 and Rs 1000 notes, a person having black money would go to the bank with a small fraction of his money, pay the tax and deposit it. At the same time, he would withdraw new money and come another day with another fraction of his old black money. Then it would be difficult for the bank to verify the dates of each and every note. In the process, a lot of black money would be legalized. To avoid this black-to-white money conversion, the government avoided printing new Rs 1000 and Rs 500 notes. Although Rs 500 note has been unveiled, it is yet to reach the ATMs. However, it seems this ‘puzzle’ of printing Rs 2000 notes while removing Rs 1000 and Rs 500 from circulation as a move to fight black money is not totally solved. The government might have some other arguments up its sleeve and would not disclose it now, fearing backlash from public and tax evaders finding means to escape the net.
(Published as editorial in The Meghalaya Guardian on November 19, 2016)