FinMin hails scrapping of notes as a 'bold move'

New Delhi: Terming the invalidation of Rs 500 and Rs 1,000 notes as a "bold move" to check black money, the finance ministry today said no serious attempt of this scale was made in the past.

"No serious attempt at this scale has been attempted in the past. In the two attempts of demonetisation made in 1946 and 1978, the scale of operation was not as expansive," the finance ministry annual report 2016-17 released today said.

The present scheme under Section 26 of the Reserve Bank of India Act, 1934, is a bold move of the government to eradicate black money or slush money operating for decades, it said.

The legal tender character of banknotes in the denomination of Rs 500 and Rs 1,000 was cancelled with effect from the expiry of November 8, 2016, with the objective to eliminate black money and curb infusion and circulation of fake Indian currency notes (FICNs).

India is the second-largest producer and consumer of currency notes. Circulation of banknotes has increased to 90.27 billion pieces from 64.58 billion over the last five years.

As on November 8, 2016, the total amount of currency in circulation was Rs 17.7 lakh crore, which included specified bank notes (SBNs) of Rs 500 and Rs 1,000.

"The ratio of currency to GDP in India (12.2 percent) is higher than countries such as South Africa (3.9 percent), Brazil (4.1 percent) and Mexico (5.7 percent)," it said, adding that a high volume of cash transactions has positive correlation with the percentage of shadow economy to GDP.

India remains a cash-based economy and hence the circulation of FICNs continues to be a menace. The fake notes are used for illegal, anti-national and terrorist activities, it added.

As per a study conducted by the Indian Statistical Institute, the stated value of fake notes in circulation is about Rs 400 crore.

As for remonetisation, the total value involved was Rs 15.4 lakh crore.

"... There was necessity to remonetise the economy as early as possible. The introduction of Rs 2,000 note was the first step towards quick remonetisation. The stock of Rs 500 and Rs 2,000 notes was built up to take care of and deal with the process of remonetisation," it said.