Finance Minister Arun Jaitley on Wednesday said the transitory pain of demonetisation is regrettable but the move will lead to a cleaner economy and better GDP growth in the long run as banks will have more funds to lend.
Addressing domestic and global investors in the petrochemical industry, he said that Indian economy in the long term is headed for a “very major major change” and policy makers in India do not shy away even from taking a very difficult decisions.
“When you are in a cusp of history and you look at the long-term impact of these steps which are going to be taken, I think India is going is become a society in the long term with a certainly better GDP, a cleaner ethics, a cleaner economy,” Jaitley said while addressing the Petrotech conference here.
Regretting the pain caused during transition post the demonetisation of 500 and 1,000 rupee notes, he said the government had factored in its impact and India is at a major cusp of change in history.
“Prime Minister had the broad shoulder to face the consequence of this and a decision of this kind carries the pain in transition which is regrettable but which was also factored in... The PM had an option of doing which many other had done—look the other way. That was an easy option, a very comfortable option. He chose the harder option. And I’m sure this harder option will certainly leave footprints behind as far as future is concerned,” he said.
Admitting that there is a shortage of cash in the system after the November 8 demonetisation move, Jaitley said the RBI releases certain amount of currency and parallely the shortage is being made up by doing more digital transactions.
“In these 2/3 months, India will move digital. We will achieve far more than what we have achieved in the past few decades. What we will end up achieving is to lay down this new normal,” he said.
Jaitley said the long-term advantage of this new normal is more money would come into the banking system, capacity of banks to support the economy will go up and low-cost funds would be available with banks.
Counting the benefits of demonetisation, Jaitley said “More transactions coming into the banking system means more transactions coming into the taxation system,” he added.
Since November 10, Rs 11.85 lakh crore in form of old 500 and 1,000 rupee notes have returned into the banking system.
It was estimated that now defunct notes constituted 86 per cent or Rs 14.5 lakh crore in circulation.