Expectations from governmentIn the initial transition period, people are likely to move to cash transactions rather than transactions through bank where the Transaction Tax is going to be implemented. Therefore, in a given time frame, the finance ministry / RBI must make provisions to remove the higher denomination currency notes from circulation. Say, within a year, the highest currency denomination should be Rs. 50. With only low valued currency available for cash transactions, people will have no choice but to go for transactions through banks, thus helping boost the government revenue collection. All cash money in higher denomination will have to be deposited in banks within this time frame and will attract 2 % Transaction tax. Source of this money will not be asked. The table below displays the disparity between India and top world economies as regards ratio of per capita income to highest denomination.
With such High denomination currency available, Indian Economic trend is to avoid bank transactions, as it is very convenient to operate with cash. This practice has a very adverse effect on Credit Expansion Capability of the economic system. This is a major hindrance in adequate Capital formation and leads to easy growth of parallel economy. Government should make legal provisions to restrict cash transactions up to a certain limit (say Rs. 2000/-). Recognizing cash transactions only up to this defined limit as legal transactions can serve the purpose. And also, government should make strict/stern legal provisions against dishonored bank transactions.
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Expectations from banks
