Congress today sought to pick holes in the Modi government demonetizing Rs 500 and Rs 1000 currency notes, saying if the idea was to address the issue of black money why has it decided to introduce Rs 2000 denomination notes, and terming the action as a "puzzle".
The main opposition party said if the common man faced problems in exchanging the demonetized notes, it would amount to "pure and simple harrassment".
Former Finance Minister P chidambaram told reporters that a similar move was also contemplated by the previous UPA government but the idea was dropped as "the economic gains were not too great".
Also Read
"Introduction of Rs 2000 note is a puzzle. How will this help in preventing generation of black money? If new income or wealth is unaccounted, will it not be hidden in Rs 2000 notes. How the purpose of demonestization of high denomination notes is served if a new and higher denomination note is introduced? Government must explain this apparent puzzle," he said.
Chidambaram, a former Finance Minister, said Congress supported any move to check black money, but warned that the demonetization exercise may cause initial contraction and disruption of economic activity. The real test, he said, would be how quickly the old notes are replaced.
Chidambaram said while he supports the government's action taken to stamp out black money, "but the method adopted raises many questions".
"We support the objective of government to stamp out black money. But the method they have adopted raises questions...The move has come as a bolt from the blue for the common man," he said.
"The move may cause initial contraction and some disruption of economic activity. The test will be how quickly the old notes are replaced," Chidambaram said.
The former Finance Minister asked the government to handle the exchange of notes quickly, efficiently and without harassment to common people.
Chidambaram spoke soon after Rahul Gandhi targeted Prime Minister Narendra Modi over the move, wondering as to how bringing in the new Rs 2000 note is going to make black money hoarding a lot harder.
In remarks laced with sarcasam, the Congress Vice President said "well done Mr Modi".
"Real culprits" who have stashed black money are "sitting tight" while lives of farmers, small shopkeepers and houswives "have been thrown in utter chaos," he said in a series of tweets.
Chidambaram said that introduction of the new series of notes is estimated to cost Rs 15,000 to Rs 20,000 crore and "the economic gains of demonetization should be at least equal to that amount".
"If RBI form is made mandatory for housewives, small traders, it will be pure harassment and Congress party will condemn it," he said in reply to a question.
Asked if it will help curb the use of black money used for funding terror activities, he said it is "complete exaggeration" to say that the bulk of black money is used for terrorist activities or to say that bulk of it is counterfeit money.
Asked if the move was projected as an "antibiotic" to
tackle terrorism, corruption and black money, Chidambaram said "antibiotics are good but an overdose of antibiotics can be bad".
"Let us not call all people in the country as black money launderers," he said, adding that 99 per cent of the people had legitimate hard-earned money.
"40 or 50 years ago, or even 30 years ago, black money was perhaps stored as cash. Imperical evidence tells us that today unaccounted wealth and income is largely stashed away in construction, real estate sector, bullion, jewellery and perhaps securities," he said, adding that it is difficult to assess the extent of black money.
"I cannot support anyone trying to launder black money into white. I am concerned about 98 and 99 per cent people who are legitimately entitled to exchange their money," he said.
Chidambaram said the real test for the government will begin tomorrow.
"How efficiently and how quickly that money is replaced.... If there is harrassment or inconvenience and all kinds of questions are asked, then I think that will be completely counterproductive.
(REOPENS DEL91)
Chidambaram said in 1978, the then Janata Party government demonetized high denomination notes, but that action failed to achieve its objectives as high denomination notes were re- introduced shortly afterwards and the volume of unaccounted wealth and income admittedly increased.
He said all Rs 500 and Rs 1000 notes in circulation, which account for 86.4 per cent of all notes in circulation, will be withdrawn from the system and only those notes that are not legally exchanged for new ones will be actually demonetized.
"How much will that be by value is uncertain and unknown. This will be real test of the success of demonetization," he said.
"If the vast majority of the old Rs 500 notes are legally exchanged for the new Rs 500 note, what purpose will be served by the elaborate exercise?" he asked.
Chidambaram said the economic wisdom of the government's decision will be tested on three parameters which includes if the cash to GDP ratio will come down from the present 12 per cent to the world average of about 4 per cent.
"The value of the high denomination notes currently in circulation is about 15 lakh crore rupees. Will that value come down significantly? Will gold imports surge, indicating that unaccounted income, wealth may seek refuge in bullion and gold jewellery?," he asked.
