The Demonetization announced by Prime Minister Narendra Modi had flushed out 86% of the Total Currency out of the system and the Reserve Bank of India is in the process of replacing them with new notes. But then, the central bank is not keen on replacing all the notes to discourage Cash economy.
RBI is focused on reducing the cash-to-GDP ratio now at 12% of GDP to somewhere between 8-10% of GDP. The cash shortage will automatically force the people to use plastic money, the central bank opines. If this happened, it will be a new normal and not at all comparable to the situation prevailing before November 8.
It has to be seen if the government can force the majority of the Indians who are illiterate to move away from Cash economy and embrace plastic money. If they could not adjust, it will only bring new problems for the economy and the government.
