Finance minister Arun Jaitley has banned all cash transactions exceeding Rs 3 lakh from April 1, a move that is expected to give another push to digital transactions and help his government in its fight against corruption.
In his budget speech on Wednesday, Jaitley said the move was based on a proposal made by a Special Investigation Team (SIT) on black money.
“The SIT set up by the government for black money has suggested that no transaction above Rs 3 lakh should be permitted in cash. The government has decided to accept this proposal,” the finance minister told Parliament.
Prime Minister Narendra Modi’s government has said it is committed to rooting out graft, as part of a clampdown on corruption that Modi promised during his election campaign. After coming to power, it quickly implemented a Supreme Court directive to set up the high-powered SIT to look into the issue.
Last November, Modi banned Rs 500 and Rs 1000 banknotes, a move he said was aimed at eliminating corruption. The decision sparked chaos and confusion across the country, with millions of consumers queued outside banks and ATMs to change a limited number of old notes for new ones or withdraw cash.
Ministers, however, have asserted the decision will yield long-term gains, and batted for digital transactions and the idea of a less-cash society.
“The Rs 3 lakh limit on payment by cash we have put along with PAN card limits on unaccounted expenditure de-incentivises the use of cash,” Jaitley told HT in an interview after his budget speech.
Chief economic adviser Arvind Subramanian said the demand for cash should essentially determine the extent of remonetisation, or the replenishment of cash needed in the economy after the note ban exercise.
“What you hope is that the economy will voluntarily want less cash than it used to…you don’t want to force people to use less cash, you need to create that environment for moving towards digital… you want to make the conditions such that people use less cash,” Subramanian said.