Former Finance Minister P Chidambaram on Wednesday questioned the introduction of Rs 2000 rupee notes as a measure to curb the black money menace. His statement comes a day after the Prime Minister Narendra Modi declared Rs 500 and Rs 1000 notes illegal tender.
Coming out strongly against the decision, Chidambaram wondered if it would serve its purpose of fighting black money.
“Introduction of Rs 2000 note is a puzzle. How will this move help prevention of black money? How is demonetisation of high value notes served if a new and higher value note is introduced?” asked Chidambaram.
Addressing a press conference in the party headquarters in New Delhi, alongside party spokesperson Randeep Surjewala, former Finance Minister P Chidambaram said that a similar step taken by the Janata government in 1978 failed.
Chidambaram said, “The prime minister justified this as a plan to crack down on black money. If this is its purpose, then it deserves our support but whether the objective of demonetisation is achieved is what we have to see.”
He also asked, “If the Rs 500 note will be replaced by a Rs 500 note, then what purpose would this exercise have served?”
Chidambaram added, although, Rs 500 was considered a high denomination note 40 years ago, “today it is doubted if it can be considered a high denomination note.” He also pointed out that various governments had considered a similar move but it had been dropped considering “the small economic gains and higher inconvenience”.
“That action failed to achieve its objectives as high denomination notes were reintroduced and value of unaccounted wealth increased,” he said.
The former FM observed that the cost of replacing the old notes will be upto Rs 20,000 crore, and wondered if the economic gains of the exercise will be of equal magnitude.
He said, “Ultimately only the old notes not legally exchanged for new notes will be demonetised. How much will that value be, is unknown. That is the real test of the success of demonetisation.”
“The economic decision of the government will be tested on a few issues. Present cash to GDP Ratio is 12%. Will this come down? Value of high denomination is around Rs 15 lakh crore. Will that come down significantly?” Chidambaram asked.
“Would there be a surge in gold imports indicating that unaccounted wealth will seek refuge in bullion?” asked Chidambaram questioning the effectiveness of the policy.