NewsX: How much does the Government estimate this denomination process will yield?
Arun Jaitley: This really can’t be answered in the numerical figures. For the reason that in the first instance, there is this huge economic advantage when it becomes a great step forward in Indian transformation in a direction of digital and cashless economy; India had to get rid of that.
We have 12% of our GDP, which is roughly 150 lakh crores, in terms of cash and circulation. Now some of them lying static, 86% of this cash is high denomination, therefore some is used for legitimate transaction, avoiding tax, crime. I think the advantage of this is overnight you imposed the legal compulsion by which this entire cash had to get into the banking system. The one which doesn’t get into the banking system gets extinguished…. therefore the replacement notes, once it get back to the banking, it will help the economy. Those who have small deposits don’t have to worry because they are legitimately entitled to some amounts and within the tax and exemption limits. But those who have very high amounts, will have to answer questions, pay taxes, pay penalties and some who have crime money into this and the consequences are far more serious and will probably allow it to be extinguished.
So there is a distinction between a person who has 2 lakh rupees and a person who has 2 crore rupees as the person with Rs 2 crore will have to answere more questions.
NewsX: Are you saying this is the first time that the government has been able to go after some of the big sharks?
Arun Jaitley: This was first experimented in 1946, but the princely states were exempted so the scheme failed and that was by the British government. Then it was experimented in 1978, where the total amount of high denominational currency was 80 crore rupees of which 20 crores got extinguished and 60 croers came back. Today, it is 14 lakh crores, so when my friends in the Congress party ask, oh, it happened in 1978 … well between 80 crores and 14 lakh crores, there is a huge difference. Now what will happen is, in terms of the advantages you said, it will change the spending habits of the people … This is one decision which will undergo serious change. This is the first time when a policy decision of the government has made the honest man happy. So far he felt that he was being discriminated against … it pays to be honest … the man who was not honest today is in trouble … that is the realisation … The size of GDP will increase because of the lot of informal economy will get into the formal one … your banking systems will get a lot of additional cash and therefore the lending facilities will become much better. To support businesses is going to be much higher and on top of it, your taxation revenues. In the short run there will be a squeeze … but in the long run there will be a lot of economic activity.
For the full interview, watch the video.