Insights and Analysis : RBI’s Decision to Withdraw Rs 2000 Notes

0
16

INVC NEWS
Mumbai,

Introduction

In a significant move, the Reserve Bank of India (RBI) has recently announced its decision to withdraw Rs 2000 notes from circulation. This decision has sparked a range of reactions and speculations about its potential impact on the economy. One notable statement came from Arvind Panagariya, the former Vice Chairman of NITI Aayog, who believes that this move will not have a direct impact on the economy. In this article, we delve into Panagariya’s perspective and analyze the implications of RBI’s decision.

Panagariya’s Perspective

Arvind Panagariya, an eminent figure in the field of policy and economics, has stated that the withdrawal of the Rs 2000 note will not directly affect the economy. According to Panagariya, the withdrawn notes will be replaced by lower denomination notes of the same value. He suggests that the motive behind this move is to deter the flow of illegal money by making it more challenging to carry out illicit transactions.

The Exchange Process

Panagariya further emphasizes that the economy will not experience any immediate consequences. Individuals holding Rs 2000 notes will have the opportunity to exchange or deposit them with lower denomination notes of equivalent value. This process ensures a seamless transition and eliminates any disruption in the circulation of money.

Limited Impact on Cash Flow

The former Vice Chairman highlights that the Rs 2000 notes currently account for only 10.8 percent of the total cash in public circulation. Furthermore, a significant portion of these notes is likely involved in unlawful activities. Hence, their withdrawal is not expected to have a substantial impact on the overall money flow within the economy.

Deposit Deadline and Legal Tender

The RBI has set a deadline for the deposit or exchange of Rs 2000 notes until September 30. This means that individuals in possession of these notes have ample time to carry out the necessary transactions. It is important to note that the withdrawn notes will remain legal tender until the specified deadline.

The Need for Rs 1000 Notes

When questioned about the necessity of reintroducing Rs 1000 notes, Panagariya expressed his opinion that there is currently no urgent need for their issuance. He highlights that citizens have become accustomed to transacting in Rs 500 or lower denomination notes, rendering the higher denomination less essential in day-to-day transactions.

Reflections on Demonetization

To provide context, it is worth mentioning the demonetization exercise that took place in November 2016, when the Indian government, under Prime Minister Narendra Modi, invalidated Rs 1000 and Rs 500 notes overnight. Panagariya draws upon the lessons learned from this event, emphasizing the immense difficulty in tracing black money. The decision to withdraw the Rs 2000 notes aligns with the broader objective of curbing the circulation of illicit funds.

Conclusion

In conclusion, the withdrawal of Rs 2000 notes by the RBI is unlikely to have a direct impact on the Indian economy, according to Arvind Panagariya. The seamless exchange process and the relatively small share of these notes in circulation contribute to a smooth transition. As we move forward, the objective of hindering illegal money flow remains at the forefront. The RBI’s decision presents an opportunity to further strengthen the financial system and promote transparency in monetary transactions.

LEAVE A REPLY

Please enter your comment!
Please enter your name here