For those who feel the cash crunch in India, there could be some surprise, if statements by experts, both within and outside the government, are any indication. There is a strong case for reducing cash in the world's fastest-growing economy, according to them.
Centre approves Ordinance that levies Rs 50,000 fine on those holding old notes after March 31
A couple of days ago, Bibek Debroy, member of the government think tank, Niti Aayog told a news channel that the cash-to-GDP ratio at 13 percent was too high in comparison to other countries.
"I don't know how many people realise that India's cash to GDP ratio today is three times the size of that in Bangladesh and Sri Lanka and higher than that in Pakistan. So clearly there is a preponderance of cash," Debroy told BTVi on Monday.
He further went on to say that the case for full replacement of demonetised cash did not exist.
"The reason I mentioned the cash-GDP ratio is to get the economy going, you do not need Rs 16 lakh crore to be back in the system for transactions. A large part of it was surfeit cash. How much do you need? Your figure will be as good as mine, but I don't think anyone would seriously suggest that for purely transactions, you need more than about Rs 9-10 lakh crores, which is the level of cash-GDP ratio that India used to have in 2000," he said.
Now, on Wednesday, a former bureaucrat who worked in the union finance ministry makes a similar argument.
"The cash-to-GDP ratio of 13 per cent is certainly not right. All these years nobody said anything against the RBI on the cash economy in the country. The central government should make it abundantly clear that it is for reducing the cash-GDP percentage to seven per cent in three years. The Centre should also write to the states on the issue," M R Sivaraman, former revenue secretary, told IANS.
As part of the remonetisation process following demonetisation, the Reserve Bank of India (RBI) pumped in almost Rs 6 lakh crore, constituting about 38 percent of the notes sucked out from the system.
"Over the period from November 10, 2016 upto December 19, 2016, banks have reported that banknotes worth Rs 5,92,613 crore have been issued to public either over the counter or through ATMs," the RBI said in its update a few days ago.
