Ten days after the government withdrew Rs 500 and Rs 1,000 notes, Finance Minister Arun Jaitley on Friday said that replacing 86 per cent of the currency in circulation with new bank notes could not have been executed in a better way than currently being implemented.
He said that the move will help banks lend at a cheaper rate to businesses, trade, agriculture and infrastructure while at the same time getting rid of the shadow economy.
"On the execution part, I don't think this could have been better executed than how it has been executed now," he said.
He said replacing such a large currency without any social unrest and any significant economic disruption was an ‘achievement’.
"When currency replacement takes place, initial inconvenience takes place, but there is not a single major incident in the country. It's moving smoothly as everyday passes by. The queues are getting smaller," he said.
"In the next 1-2 weeks, we have to make sure currency reaches rural areas because that is where it's required. This is the largest currency exchange in the world probably in recent times," he added.
Indian shopkeepers, traders and retailers, according to Jaitley, will realise that formal official trade is certainly superior way of doing business than just a shadow economy.
"It has its own pitfalls. And therefore by this shock therapy, everybody enters into cleaner system of economy. In the long run, it will be welcome by all," he said.
Stating that there is not any parallel of such a large decision in Indian history in several decades that was ethically and morally so correct, he said every honest man felt that he had no reason to be worried.
The decision has "popular support because there were people with crime money, black money or wealth accumulated by not paying taxes".
Stating that high denomination currency has ceased to be a legal tender, Jaitley admitted that some more legal steps will be required later on if one is to extinguish that.
"It is important to realise what was the Indian normal for last 70 years. It had almost become the Indian normal to have a parallel economy, to have a shadow economy. It was almost a way of life," he said.
With large currencies in circulation outside the banking system and a narrow tax base, banks were "becoming challenged if not vulnerable".
"And I think it's not the normal in which we are functioning. This one decision now redefines the Indian normal, there is a new Indian normal," he asserted.
The finance minister also made a point that just as the telecom revolution which had not been envisaged in India but took place, the new normal is going to be different 5-8 years down the road.
"We are going to live in an entirely different kind of an economy," he said.
On big challenges Indian economy faced, Jaitley pointed to the limited ability of banks to support growth because of NPAs and their "lending abilities are suspect".
He also spoke of the private sector not bringing in investment, which is being compounded by a global slowdown.
"Now let's see the impact of this decision in medium and long term. It has suddenly pushed up the ability of banks to lend at a cheaper rate. The ability of the Indian banking system to support growth, support economy, support growth economy had become extremely doubtful," he remarked.
Banks, he said, are suddenly flush with all low-cost funds.
"So, these low-cost funds are going to be lent to businesses, trade, agriculture, infrastructure at a much lower rate today. And the private sector, which was feeling stressed, this has a direct impact," the Finance Minister added.
"In the long term, it is going to change the way traders trade, how we manage the household budget. It would bring more transactions into the banking system, we have a cleaner and bigger economy, a bigger taxation system -- and this one decision redefines the Indian new normal," he further said.
With PTI Inputs