Recently, the Reserve Bank of India has announced the withdrawal of 2000 rupee notes from the market. It is said that bank notes of this value are being withdrawn as part of clean note policy. Demonetisation is one of the primary reasons for taking a stand against ill-gotten gains or black money.
Earlier in November 2016, the Narendra Modi government announced demonetisation of Rs 1,000 and Rs 500 notes overnight. This caused an uproar across India. Because the government withdrew 86 percent of the currency overnight. Then 2000 rupee notes were introduced. So this time after the cancellation of 2000 rupees notes, the speculation has started again.
According to analysts and economists, the current move will be less disruptive than in the past. Because the decision to demonetise 2000 rupees is not a sudden announcement like before, this time it is being withdrawn over a long period of time.
But the question is, why did the Indian government withdraw the 2000 rupee note? When the Rs 2,000 note was introduced in 2016, the government’s aim was to speed up circulation of the Indian currency after demonetisation. However, by 2018-19, the printing of Rs 2,000 notes was stopped. Since then the central bank has been moving towards reducing the number of Rs 2,000 notes across India. Moreover, it was often said by the central bank that they want to reduce high-value notes from the market. Following this, the printing of 2000 rupee notes has been stopped in four years.
However, the Government of India and the central bank did not specify the reasons for this move. But analysts say cash usage usually increases ahead of state and general elections.
Rupa Rege Nisur, Chief Economist at L&T Finance Holdings, said, “It is a smart decision to take such a step ahead of the general elections. But those who are using these notes to save money may face difficulties.”
From 2017, India’s growth rate started to decline. At that time, many economists said that the economy lost momentum mainly due to demonetisation. So will the decision to scrap the 2000 rupee note affect economic growth?
About this, Rupa Rege Nisur said, “This withdrawal will not cause any major disruption, as there is enough availability of small denomination notes. Besides, the scope of digital transactions and e-commerce has expanded significantly in six-seven years.”
The value of the 2,000 rupee notes in the Indian market is 3.62 trillion Indian rupees or 4,427 million dollars, which is about 10.8 percent of the currency in circulation.
However, small businesses and cash-intensive sectors such as agriculture and infrastructure may face some difficulties in the near future, said Yuvika Singhal, economist at independent research firm Quanteco Research. It is believed that the liquidity of the Indian banking system will improve through this initiative. As all Rs 2000 notes will return to the banking system, we will see a reduction in cash in circulation. So it will help improve the liquidity of the banking system, said Madhavi Arora, economist at MK Global Financial Services. It is also mentioned that from Tuesday, 19 regional offices as well as different banks will be able to exchange 2000 rupee notes and collect low value notes in the market. Source: Reuters
