Former finance minister P Chidambaram said the previous Congress governments had also considered attacking black money by swapping currency notes, but decided against it as it was considered too costly.
Talking to mediapersons, Chidambaram said the cost of swapping the notes would be between Rs 15,000-20,000 cr and the benefit should at least be equal to that amount.
“Various governments considered it but it was dropped considering the economic gains would be very small and the inconvenience to the public would be very high,” Chidambaram said.
“The test will be how quickly the old notes will be replaced by new when they are legally tendered in banks,” he added. “We agree the objectives are sound, but will have to wait and see whether or not they are achieved.”
Chidambaram said most of the money is likely to be stashed away in the form of material investments rather than cash. “Empirical evidence tells unaccounted wealth is largely stashed away in construction and jewellery. Idon’t know how much is in hard cash,” said.
Modi’s scheme will work only if at least a substantial chunk of money is stored in cash format.
“15 lakh cr is the amount of money that is estimated to be held in the form of 500, 1000 rupee notes.. the success of the scheme will depend on how much of this money is exchanged for new currency. If all of it is exchanged, then this was an exercise in futility,” he added.
He also asked why a new higher denomination note — in the form of Rs 2,000 — was being introduced if the aim was to control stashing away of unaccounted cash.
CORRUPTION AND CURRENCY
Critics have accused previous governments of not just not acting against corruption, but also of engaging in it themselves.
Black money refers to illegal earnings, mostly as a result of corruption, but also as a result of undeclared business operations.
The Congress Party lost office two years ago on a wave of anti-corruption sentiment.
Meanwhile, gold prices increased in India — both because of many people rushing to convert their cash into gold as well as because of foreign factors.