"In the medium and long term, direct and indirect tax collection will increase. Lot of currency outside the banking system perforce will have to get into the system," Jaitley said at a press briefing here.
"But how much currency in the market comes back into the banking system, we will come to know only with time," he said, adding that he expected the supply of high denomination currency notes to stabilise in three-four weeks.
In a surprise move, the government on Tuesday announced that Rs 500 and Rs 1,000 currency notes were being demonetised. Instead, new notes of Rs 500 and Rs 2,000 denomination will be issued.
Jaitley said the step by the government to crack down on black money, terror financing and corruption not merely nudges the economy towards a cashless society but is a significant push in that direction.
The parallel economy running outside the banking system, which was thriving on black money, has consequences like tax evasion and tax non-compliance and will be replaced by the real economy, Jaitley said.
"The move will establish credibility of the Indian economy in the world," he said.
"The move will expand the GDP. It will push up (government) revenue and money in the banking system. The states will also benefit when the kitty of revenue goes up," he added.
Jaitley assured that adequate new currency will be circulated via banks and post offices from Thursday onwards.
Finance Secretary Ashok Lavasa also clarified on Wednesday that new currency notes of Rs 500 and Rs 2,000 value will be available for people to withdraw from ATMs from Friday.
"There will not be any problem as it (Rs 500 and Rs 2,000 notes) will be available from Nov 11 in all ATMs," Lavasa said.
The government had announced on Tuesday that while ATMs will be shut for two days, once they reopen on Friday, a person can withdraw up to Rs 2,000 per day through a single card till November 18.
Thereafter, the limit will be increased to Rs 4,000 per day.
"The Reserve Bank will closely monitor the fresh notes that will be issued. The cash withdrawal restrictions will ease once supplies of new Rs 2,000 and Rs 500 notes improve," Lavasa added.
As per data available with the Reserve Bank of India (RBI), Rs 17,54,000 crore worth of currency is in circulation in India, of which 45 per cent is accounted for by Rs 500 notes and 39 per cent by Rs 1,000 notes.
In other words, Rs 16,32,000 crore worth of currency stands demonetised.