Regret pain of demonetization, move will lead to cleaner economy: Jaitley

Finance Minister Arun Jaitley on Wednesday said the transitory pain of demonetization is regrettable but the move will lead to a cleaner economy and better GDP growth in the long run as banks will have more funds to lend. Addressing domestic and global investors in the petrochemical industry, he said that Indian economy in the long term is headed for a "very major major change" and policy makers in India do not shy away even from taking a very difficult decisions.

"When you are in a cusp of history and you look at the long-term impact of these steps which are going to be taken, I think India is going is become a society in the long term with a certainly better GDP, a cleaner ethics, a cleaner economy," Jaitley said while addressing the Petrotech conference in New Delhi. Regretting the pain caused during transition post the demonetization of 500 and 1,000 rupee notes, he said the government had factored in its impact and India is at a major cusp of change in history. "Prime Minister had the broad shoulder to face the consequence of this and a decision of this kind carries the pain in transition which is regrettable but which was also factored in... The PM had an option of doing which many other had done -- look the other way. That was an easy option, a very comfortable option. He chose the harder option. And I'm sure this harder option will certainly leave footprints behind as far as future is concerned," he said.

Admitting that there is a shortage of cash in the system after the November 8 demonetization move, Jaitley said the RBI releases certain amount of currency and parallel the shortage is being made up by doing more digital transactions. "In these 2/3 months, India will move digital. We will achieve far more than what we have achieved in the past few decades. What we will end up achieving is to lay down this new normal," he said. Jaitley said the long-term advantage of this new normal is more money would come into the banking system, capacity of banks to support the economy will go up and low-cost funds would be available with banks.

Counting the benefits of demonetization, Jaitley said "More transactions coming into the banking system means more transactions coming into the taxation system," he added. Since November 10, Rs 11.85 lakh crore in form of old 500 and 1,000 rupee notes have returned into the banking system. It was estimated that now defunct notes constituted 86% or Rs 14.5 lakh crore in circulation. Jaitley said the most important event in Indian history in the last 100 years has been India's independence and that changed the course of history. "It (independence) was accompanied by pain, the largest migration of population for years as people were rehabilitated. When you are changing the mode of payment, of course this is a very small incident compared to that. "And therefore when you see the long-term impact we must all assess that it is going to change the mode of doing business, it is going to change the mode of undertaking expenditure," he said.

Jaitley said there was a need to push digital transactions as of the 80 crore debit and credit cards in the banking system, only 45 crore is being actively used. Jaitley said after years of witnessing policy paralysis, India has emerged as the fastest growing major economy in the world. "For two years we have been continued to be fastest, I have no doubt that we will continue to be so this year. Few years from now we hope to evolve from a developing emerging economy to a developed economy," he said. Jaitley further said that over the last 70 years, India has witnessed an extremely comfortable relationship between policy planners, business and trade and citizens and the normal Indian life saw two components of payments being discussed in real estate and few other sectors.

"This had almost become the normal and for a government to try and disturb this normal, obviously is disruptionist. For governments, Prime Ministers to just look the other way was also the normal. And therefore the situation which has continued for almost seven decades, would have continued indefinitely. "But this so-called seven decade normal had to be disrupted. And it had to be disrupted because a normal for any society can't be this normal which existed," Jaitley said.