Demonetisation debate: Uday Kotak says no logic behind Rs 2000 note; will it stay long? What economists say

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Updated: December 10, 2018 4:56:54 PM

Two years after Modi government announced the controversial demonetisation decision, Uday Kotak has come out in open saying the noteban was not properly planned.

What happened to your demonetised notes? Will Rs 2,000 notes be withdrawn? Government has this to sayTwo years after Modi government announced the controversial demonetisation decision, Uday Kotak has come out in open saying the noteban was not properly planned. (Image: IE)

Two years after Modi government announced the controversial demonetisation decision, Uday Kotak has come out in open saying the noteban was not properly planned. “I think we would have had significantly better outcomes if we had just thought about simple things”, news agency PTI quoted Uday Kotak as saying at former chief economic adviser Arvind Subramanian’s book launch over the weekend.

Raising doubts on the logic behind introduction of Rs 2,000 note, the veteran banker said, “If you are taking out Rs 500 and Rs 1,000 notes, why would you introduce Rs 2,000 notes?”

However, not all are in sync with what Kotak opined. Even though it was a fallacy thinking elimination of large denomination notes of Rs 100 and Rs 500 would flush out black money, the idea held merit at that time, Madan Sabnavis, Chief Economist, CARE Ratings told FE Online.

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“I do not think (and have always held) that black money resides in currency and hence the new denomination does not make a difference. RBI could have printed 100 rupee or 200 rupee notes but the time taken would have been longer and cost higher”, he added.

In the first few days no one raised this anomaly and it was only when the pains of demo and replacement got severe that critics raised this flag of the logic of getting in 2000 notes, he further said.  I think it was a wise idea as it made fewer notes required, he noted.

“Considering you had to quickly re-inject liquidity into the system, and if you only kept printing Rs 100 notes (as Rs 500 notes came later) liquidity shock would have continued for a long time”. Sameer Narang, Chief Economist, Bank of Baroda told FE Online.

On would Rs 2000 notes continue to remain part of the system or shunted out soon, both economists share a common view. “These notes may be gradually withdrawn I think if it is believed that it is being used for black transactions, but hopefully this should be done without disruption and the best way is to stop printing such notes and move to only 500 notes”, Madan Sabnavis said.

“If economy has got into so much transformation for getting Rs 2000 notes into the system, I think it should stay there. The government must have decided and then only rolled out Rs 2000 note”, Sameer Narang noted.

On 8 November 2016, the Modi government announced the demonetisation of all Rs 500 and Rs 1000 banknotes of the Mahatma Gandhi Series. It also announced the issuance of new Rs 500 and Rs 2000 banknotes in exchange for the demonetised banknotes.The government claimed that the action would curtail the shadow economy and reduce the use of illicit and counterfeit cash to fund illegal activity and terrorism.

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