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Promoting Cashless Economy : The New Design of the the Government
Deepak Bansal | 28 Nov 2016

Prof. J. D. Agarwal, Professor of Finance at Indian Institute of Finance has welcomed the decision of the Government, Ministry of HRD to ask various educational institutions and also Prime Minister's advice to various Ministries to reduce their cash transactions to the minimum extent.

This will greatly help reduce the size of the cash operations. Such a switch to cashless mode will reduce corruption and improve ease of doing business in India.

However, Dr. J. D. Agarwal feels that allowing a withdrawal of Rs. 24,000/- for individuals and Rs. 50,000/- for an institution/organisation per week is quite not rational. The government should have considered withdrawal of cash from banks based on the average withdrawal of financial year 2015-16 plus/minus 20% per month for individuals as well as organisations. If a principle of this nature is adopted, it were have helped managing the cash liquidity of banks, organisations and individuals.

Rationing of this form generally suffers withdrawals of cash from the bank as adopted by banks or government even if an individual/organisation does not need cash. While it results in shortage of the liquidity for large size organisations because of such absolute amount of withdrawals as genuine requirements of cash by different size of organizations, depending upon the nature of the business is different. Small, medium and large enterprises should not be equated in terms of their withdrawals feels Dr. Agarwal.

Prof. Agarwal also welcomed the decision of government to stop exchange of currency. Most people who were exchanging Rs. 4000, should have done it through depositing money and withdrawing from the bank as they have bank accounts. For poorer people or people not having an account should have been allowed to exchange of Rs. 1000 with smaller denomination money. The facility has been misused by some resulting into formation of long queues and people facing hardships and media making news.