For the first time, the Centre has admitted that the decision to introduce Rs2,000 notes in place of Rs1,000 was driven by inflation.
This fact surfaced in an affidavit filed by the Centre in the Supreme Court. Explaining the rationale behind the introduction of Rs2,000 notes, the affidavit said that since the year 2000, when the Rs1,000 note was re-introduced in the system, inflation had such an impact on the citizen’s purchasing power that the value of the Rs1,000 note was just worth Rs406 in the present day. For this reason, the Centre decided against re-introduction of the Rs1,000 note and chose to give more purchasing power to customers by introducing a higher denomination note.
In the affidavit, T Narsimhan, Under Secretary with Department of Economic Affairs, Ministry of Finance wrote, “Barring short-lived exceptions, India has consistently seen moderate to high inflation since the year 2000, thus progressively eroding the value of money in purchasing power parity (PPP).”
Narsimhan, who filed the response on behalf of the Centre in the court, further stated that “The present value of Rs1,000 on PPP terms works out to be Rs406 taking the year 2000 as the base year and using the Consumer Price Index (CPI) as the measure of inflation.”
The Centre also argued that introduction of Rs2,000 notes would not cut printing cost, but also improve ease of carrying cash and smooth conduct of transactions.
The apex court had entertained several petitions against the Government’s November 8 notification banning old Rs500 and Rs1,000 notes to know whether the implementation of the decision could have been smooth in order to avoid inconvenience to people.
Addressing this concern, the Centre said that the set of designs for the new Rs500 and Rs2,000 notes was prepared by Reserve Bank of India (RBI) in May 2016. However, the move to introduce it was kept secret as any attempt to recalibrate ATMs prior to introduction of new notes or any such arrangement would have compromised with the objective of flushing out black money and fake currency currently in circulation in market.