No pain, no gain

With a staggering 98 per cent of consumer payments — at retail outlets, to small service providers, etc — in cash, and with inflation having turned the ₹500 note to the default base denomination for most cash transactions, the common man will undoubtedly bear much of the immediate pain of the Centre’s surprise move.

With banks closed today and ATMs shut for two days, citizens’ day-to-day life is going to be disrupted. While the move is certainly bold, only time will tell if its stated aims — curbing counterfeit paper money and bringing more black money into the open — will be realised. The first objective will be certainly be met, at least in the near term. But as for the second, this seems like a one-shot move. The reintroduction of notes of not just ₹500 but also ₹2,000 will take us back to the old cycle, albeit after a gap. Till such time that the new notes are introduced, high-value transactions will inevitably turn cashless or be deferred.

That said, for India to turn truly cashless, digital-payments systems must become more foolproof. Transaction costs will have to be reduced sharply for low-value transactions. But the real benefit may be in reducing cash deals and bringing more of the economy into the tax net.

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