Economic Highlights

New Delhi, 22 May 2023

Rs 2000-Note Death Order

20 PER CENT TCS, JITTERS BIZ

By Shivaji Sarkar 

It has been a shock,big surprise and unexpected. At a young age of six years the Rs 2000 note is on its last journey. It will be withdrawn on September 30, a month and eight days before it would have entered the seventh year. 

No, its death would not hurt anyone but for the businesses. Its appearance has become rare for quite some time. No one knows where it is hiding. It is rarely seen in one’s pocket or purse or even at a bank ATM. Even the Reserve Bank of India is not clear about it except that it wants a clean note policy. It was never printed after the fiscal year 2018-19. For all these years it has been trying to meet the shortage of currency notes due to an emergency shortage created by the sudden demonetisation, leading to chaotic situation that had seen crores of people rushing to the banks in the wake of demonetisation. 

Now only 10.8 percent of India’s currency in circulation is being withdrawn! There was no Rs 2000 note before 2016. An unplanned demonetisation had led to a sudden currency vacuum, throwing the market out of gear and sudden closure. Commodity supply and purchases had got a jolt. Banks were in a tizzy. Out of the blue was taken the decision to introduce Rs 2000 notes, smaller than the previous Rs 500 and 1000 notes. It did not fit into the ATM. These had to be recalibrated. 

In such a melee, Rs 2000 notes had born with many myths, including the one telecast by a TV channel. It announced embedding of secret chip emitting beep signals to detect these if anybody hid it for ulterior purposes. During little over two years, from late November 2016 to March 2019, Rs 6.73 lakh crore worth notes were printed. 

The notes detected in circulation were worth Rs 3.19 lakh crore during the last one year. The rest of the notes may come out after this exercise to an end on September 30. As per RBI’s data, about 89 percent of ₹2000 notes were issued prior to March 2017 and are at the end of their estimated lifespan of 4-5 years. The total value of these banknotes in circulation has sharply declined to ₹3.62 lakh crore as of March 31, 2023 --- from ₹6.73 lakh crore at its peak as on March 31, 2018, which was 37.3 percent of Notes in Circulation at that time. 

The central bank said this denomination is not commonly used for transactions. “Further, the stock of banknotes in other denominations continues to be adequate to meet the currency requirement of the public,” it added. “In view of the above, and in pursuance of the “Clean Note Policy” of the Reserve Bank of India, it has been decided to withdraw the Rs 2,000 denomination banknotes from circulation,” the RBI said. 

Since all the 2000-rupee notes likely to return to the banks, there would be a reduction of cash in circulation and that may help improve banking system liquidity.No one understands the rationale for the queer decision. The US Federal Bank also issues such withdrawals but with a standard tag that these would continue to be legal tender till in circulation. Largely, replacement of 10.8 percent of the currency with over four-month deadline should be a gradual process. 

There is a big hassle, certainly for the replacement is not easy if someone has large numbers of these notes. One can deposit up to worth Rs 50000 at home branch of an account holder and Rs 20000 at other branches but with elaborate filling up forms. Some may have a guilt feelingfor no fault of theirs. At the same time, in the political arena the move is being viewed as having been taken with an eye on the ensuing Assembly elections as well as General election 2024. The political parties certainly would be thrown into a tizzy as let us not forget elections in the country are influenced by both money and muscle power. 

Money circulation in 2016 was at Rs 17,7 lakh crore-- including Rs 2.33 lakh crore 100-rupee-notes and now it has almost doubled to Rs 30.8 lakh crore. Congress President Mallikarjun Kharge asks ‘if the second demonetisation is to correct the wrong.’ Trinamool leader Mohua Maitra says ‘no civilised nation puts its people under constant fear of turning cash into toilet paper. Why should we stress vapourising our wallets every few years?’ 

It will not be as harsh as 2016, when even infirm, old and women with children clamoured for exchanging their notes, which nobody ever thought would even be replaced in one go and with a sudden 8 pm announcement by Prime Minister Narendra Modi. The disruption, misery and anxiety rocked the nation for a wild goose chase for black money, but that never was accounted for. The note-ban killed a thriving parallel economy of the poor that shielded the country from three major crises the fall of Soviet Union in 1991, the Asian Tiger crisis in 1997 and the sub-prime crisis in 2007-08. That resilience of the Indian economy was compromised with note-ban. 

But Rs 15.41 lakh crore worth currency notes of Rs 1000 and Rs 500 denominations suddenly lost their legality throwing the nation into utter confusion. Many threw bagful of notes into the Ganga or Narmada. Many got it exchanged at a discount. The banks worked overtime to fulfil the people’s need. Finally, the RBI in August 2018 reported that Rs 15.31 lakh crore or 99.3 percent notes were returned. 

The massive, unprecedented demonetisation could not serve its purpose. The announced black or hidden money could not be traced though Rs 10,720 crore worth wealth was lost and never returned to the bank. Many small businesses had a tough time and Indian economy saw an immediate fall in its GDP growth and a long revival. 

The present withdrawal may impact the small businesses or farmers who might have held such notes, some experts.Sudden decisions on critical aspects sullies the brand image. Uncertainties of any sort is not liked by businesses and the relations become cool. This apart no company would like to have an unforeseen liability. Tinkering repeatedly with the currency gives jitters to the business class. 

This comes with two systems called liberalised remittance scheme (LRS) and tax collected at source international credit card (TCS).  It is now 20 percent TCS through amendment on rules for International Credit Card done India by an amendment in FEMA. 

Before the Union Budget 2023, TCS, under the LRS was at 5 per cent for the remittances that exceeded Rs 7 lakh. except those engaging in transactions related to medical treatment or education. In reality, this adds to the business expenses as travel and tours to cost more. This comes into effect from July 1. 

One the one hand the country pines to have a $5 trillion economy,and on the other avoidable moves gives jitter through acts that are avoidable. The Rs 2000 send-off may be less painful but all the same it would have hassles and affect people and businesses. ---INFA 

(Copyright, India News & Feature Alliance)