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NEW DELHI: Indian Finance Minister Arun Jaitley said on Friday that a cash crunch following the scrapping of high-value banknotes would ease by Dec. 30 with the release of new 500 and 2,000 rupee notes.
Jaitley said, however, that the amount of new banknotes being released would not be the same as that circulating before Nov. 8, when Prime Minister Narendra Modi announced the so-called demonetization to purge the economy of illicit “black money.”
Modi, at a stroke, removed from circulation banknotes worth an estimated 17 trillion rupees ($249 billion).
Finance Ministry sources say they plan to reissue just over half of this — a task that would take months given the capacity of India’s four banknote printing presses.
Modi set a 50-day deadline that runs to Dec. 30 for people to swap or deposit their old banknotes.
He has promised the situation would stabilize by then and urged Indians to adopt cashless payment forms such as debit cards and mobile wallets.
“Obviously, one of the advantages of this exercise is going to be that you won’t have the same level of paper currency which existed,” Jaitley told the Hindustan Times Leadership Summit.
Officials expect some illicit cash never to be returned and to expire worthless, while other money that is deposited will remain in the banking system.
The government’s goal is to encourage the use of cashless forms of payment, a challenge for most Indians who live and work in the informal economy.
The dislocation resulting from the cash swap has been huge — workers seeking to collect their monthly pay have been turned away as banks ran out of cash, while car makers have reported a steep downturn in their November sales.
“It does create a disruption,” said Jaitley.
“But I don’t see the disruption lasting for very long. You may see some impact for a quarter or so.”
Jaitley also repudiated a call by the left-wing government of India’s state of West Bengal to delay a planned Goods and Services Tax (GST) to avoid inflicting another economic shock in the wake of demonetization.
He said the plan was still to launch the new tax on April 1.
Time was tight because, under a constitutional amendment that enabled the GST, India’s old system of indirect taxation would lapse next September.
“If on Sept 16, 2017, there’s no GST, then there’s no taxation,” he said.
“Our intention is to make sure it gets implemented from April 1, 2017.”
As anger mounted at the continued shortage of cash, the leader of the opposition Congress party accused Modi of experimenting “with the financial future of 1.3 billion people.”
In a speech to party supporters, Rahul Gandhi said “the results of this catastrophic experiment will soon be revealed” as a report said that there had already been a sharp fall in consumer spending.
“Every economist of any repute has already condemned it,” added Gandhi.
Some people have found themselves queuing for many hours to access their own cash while ATMs have been regularly running out of notes.
A report in The Hindustan Times said that the cash squeeze was already being felt in many sectors of the economy, including a big drop in sales of mobile phones, home appliances, cars and real estate.
Indians had been given until Dec. 15 to use the old bills at filling stations but the government rushed forward the deadline on Thursday evening, giving people barely 24 hours to spend their old notes.
Prime Minister Narendra Modi unleashed chaos with his shock announcement last month that all 500 rupee ($7.30) and 1,000 rupee notes — some 86 percent of all bills in circulation — would cease to be legal tender.
The so-called demonetization initially won widespread approval but the government has been forced onto the defensive as frustration grows at limits on withdrawing new banknotes.
Cash accounts for 90 percent of transactions in India and the government has said it would take time before new bills are distributed.
“I was using my old notes up till now for filling petrol. Now I am dreading going to the bank. The government has no clue what we are being made to go through,” said Saurav Mallik, who works in the private sector.
Frequent rule changes in response to pressure from various groups and growing disorder have made matters worse.
Those with old notes are allowed to deposit them into their bank accounts until year end but long bank queues had prompted many to use them at gas stations. This option has now been cut off.
“I worry that there is going to be more confusion and chaos in the days ahead,” Saima, who works as an attendant at a petrol filling station, said.
“Fights have already been breaking out,” Saima, who uses only one name, added.
Jaitley acknowledged it was inevitable that the move would result in queues in a country the size of India.
“If you are replacing 86 percent of a country’s cash... it is going to be a time consuming exercise,” he told the conference in Delhi.
But Jaitley insisted the decision would ultimately have a positive impact as more consumers switch to digital currency rather than cash.
“You will reduce the quantum of paper currency and take the country more toward further digitization,” he said.
“The shortage of currency itself is forcing this to happen but that’s a development which is for the better.”
India’s economy grew 7.3 percent during the last quarter, but many economists have predicted that the demonetization will make a big dent in the next set of figures.