Demonetisation move a standard prescription: Rangarajan

Government's demonetisation move is a "standard prescription" to extinguish black money that was tried in the past and more measures are needed to prevent future accumulation of unaccounted money, noted economist and RBI former governor C Rangarajan said today.
"The government's move to withdraw Rs 500 and Rs 1,000 notes is a "standard prescription" in extinguishing unaccounted
money. This has been tried in the past. But the government (this time) had three targets," he said.
Rangarajan, the former chairman of Prime Minister's Economic Advisory Council (PMEAC), said the targets were those who accumulated money, who issue fake currency and those financing terrorism, the last two being of different nature.

"But as far as black money is concerned, this measure is a step towards reducing black money or unaccounted money from the system," he told PTI here.
However, the former PMEAC chief said there were caveats to the measure taken by the present government as unaccounted money was dealt only in the form of currency.

"It does not deal with unaccounted income kept in other forms like gold or real estate," he said.
"The other caveat is that this measure deals with the existing stock. It does not have any implications on the future accumulations of black money. So, more measures needed to ensure black money does not get accumulated."

Responding to a query on the short time given by the government for withdrawal of the Rs 500 and Rs 1,000 notes, a move criticised by some political parties, he said, "The point is, it is always difficult to give time in a measure like this."
He said: "At least, the temporary disruption that has been caused in the economy by withdrawing these notes should come to an end as quickly as possible. The temporary disruption should be minimised. They (government) should really rush in the money so that people in general are not affected."
The government had to pool in the money into the banking system as sectors like retail, real estate and jewellery would undergo a "fundamental change" following the initiative, Rangarajan, who headed the apex bank in 1992-97, said.

Asked about the long-term impact of these measures, he said, "It will affect the retail trade as most of the transactions are done using cash... There are some other sectors in the economy like real estate, jewellery where cash has become a major player for transaction. Those will undergo a fundamental change."
Rangarajan's thinking is real estate and jewellery sectors will realise that the cash for this particular purpose is not appropriate, which can can lead to a reduction in the number of unaccounted transactions.
He was here to participate in the conference 'India Finance Forum' organised by CII.