Nearly 99 percent of the demonetised Rs 1,000 notes came back to the banking system at the end of March, 2017, according to a report in Times of India, which cites Reserve Bank of India (RBI) data.
To be precise, there was Rs 8,925 crore worth of Rs 1,000 notes in ‘circulation’ at the end of March. Considering that Rs 6.86 lakh crore worth of Rs 1,000 notes was in circulation at the time of demonetisation (the ToI report cites a statement made by Santosh Kumar Gangwar, minister of state for finance, in the Lok Sabha on 3 February 2017), this means only a little over a percent of Rs 1,000 notes were not returned to the banking system at the end of the demonetisation exercise. In other words, as far as Rs 1,000 notes are concerned, the expectations of unaccounted money getting perished outside the formal system, has fallen flat.
Now, what about the Rs 500 notes? As the ToI report rightly mentions, a similar calculation is not possible in the case of Rs 500 notes since unlike Rs 1,000 notes, new Rs 500 notes were introduced to the system shortly after note ban and the RBI’s data doesn’t offer a break-up between the old and new Rs 500 notes. Hence, the circulation numbers of Rs 500 notes can be misleading. Remember, more than half of the Rs 15.4 lakh crore demonetised notes were Rs 500 notes. For the same reason, one will have to wait for the RBI numbers on the break-up of Rs 500 notes to arrive at the final figure. The Rs 1,000 notes data is at best an indicative figure of what could finally emerge.
If indeed the Rs 500 notes follow the Rs 1,000 notes trend and all Rs 15.4 lakh crore returns to bank counters, then again the theory of black money stashed in cash outside the formal system that isn’t accounted in any manner getting extinguished falls flat. That leaves us with only two possibilities. First, there was no significant black money in cash in India.
Second, the crooks took all their black money (in cash) to the banks in an attempt to whiten it, either directly or through benamis or in other ways (purchases/refunds/political donations etc). They now face the risk of getting caught by the taxman and possible punitive actions. But, the tax cheats would have thought that it is anyway better to face the risk of paying penalty rather than burning the loot or throwing it down the sewage. Besides, the hopes that an over-burdened tax department would take ages to lay their hands on the guilty, too, would have emboldened the crooks.
Data on Rs 500 notes, however, holds the key before one can arrive at a final conclusion on all this. And here is where the RBI comes across as a spoilsport. Even after nine months of demonetisation, the central bank is yet to give the data on how much money came back to the system in old notes post-demonetisation. The Urjit Patel-headed RBI is still counting the notes that have returned to the banking system. The last update on this came just a month after the demonetisation announcement, i.e., in the second week of December, when the RBI said the banking system received Rs 12.44 lakh crore in invalidated high value notes until 10 December, 2016. After that, there is no information and only the excuse that the counting process is still on.
Have the RBI and government already got the provisional number and are re-counting the notes because they are not happy with what they have seen? We don’t know. The excuses so far given by the central bank—not enough counting machines, tiring process of identifying fake notes, etc,—are surprising. Post-demonetisation, each bank branch accepted the money from the public after issuing receipts, entering the value on core banking systems and also using fake note detectors. Hence, there is already an estimate of what amount came in. Why does it take so long for the central bank then to finish the process even if, one assumes, that it has gone for re-counting of the notes?
According to R Gandhi, a former RBI deputy governor, it will not be before March 2018 when the RBI completes the counting of old demonetised notes that returns to the banking system (Read his interview to CNBC TV18 here.
How did Prime Minister Narendra Modi, in his Independence day speech, say that Rs 3 lakh crore that had never come into the banking system before, has been brought into the system after demonetisation even before RBI finished counting banned notes?
Certainly, there are some positives of demonetisation. For instance, the increase in number of taxpayers vulnerable to taxmen’s scrutiny. Also, high value cash transactions are now being monitored which will act as a disincentive to tax evaders. But, it is doubtful whether the main stated objectives of demonetisation, tackling black money and corruption have been achieved (read a report on demonetisation impact on corruption here). Even former top officials of the RBI have questioned the lack of transparency in the way the central bank has carried out the implementation of the demonetisation excercise. The delay in releasing the count of old Rs 500, Rs 1,000 notes would only add to the embarrassment.