Massive crackdowns become a necessity when circulation of high-currency denominations increase alarmingly, the government said on Wednesday.
“Only when the proportion of high-denomination notes become very high should the government look at an intervention… In normal circumstances, this cannot be done as it involves a cost, though small. Then there is also the inconvenience angle,” revenue secretary Hasmukh Adhia told HT.
The government on Tuesday announced withdrawal of all currency notes of Rs 500 and Rs 1,000 from November 8.
The last time demonetisation was done was in 1978, the percentage of high-denomination notes was not very high. “This time Rs 500 and Rs 1,000 notes formed 86% of the total currency flow in the economy,” Adhia added.
“We have got our systems in place to find out what is happening, so people with legal sources of money should not be scared...We have several ways of tracking transactions to know which is black money.”
Though citizens would face some inconvenience for a few weeks, the government has ensured that enough currency notes of Rs 100, Rs 500 and Rs 2,000 are infused in the banking system to allay fear of any possible liquidity crunch, Adhia added. “It will take some time, but by the first week of December, this will be normal again.”
Adhia also allayed fears that the move will lead to increase in gold smuggling. “There is no correlation between gold smuggling and demonetisation of currency..The old high-value currency is illegal now so the seller will also not accept it and the buyer will not be able use it. There is no way to use the old currency for smuggling.”
“There is no limit on deposits, so people who have withdrawn money from banks and have sizeable amounts of cash at home can deposit it without fear, as long as the money is clean. The income tax laws are very clear if you can explain the source of the money and show tax has been paid on it, there is no reason for you to worry.”