Prime minister Narendra Modi demonetised R500 and R1,000 currency notes on November 8. These notes valued at R14.2 lakh crore accounted for 86.4% of the total currency—R16.4 lakh crore—in circulation. While people have a 50-day window to deposit these notes in banks and post offices, it is believed that a third of this amount may not come to the banks. That reduces the currency liability of the Reserve Bank of India by that amount. This money can be used to recapitalise banks or reduce the fiscal deficit.
The move also opens a window for the government to get more people into the tax net. Considering that only 52 million people (4%) pay income tax, this will provide government with information to tap people who have been evading taxes all along. Now, the government should work towards creating incentives for people to opt for digital payments. That can be done by promoting the use of RuPay cards, opting for mobile wallets and making online payments. A big step to move towards a cashless society has clearly been taken.