Between Rs 14.5 lakh crore to Rs 15 lakh crore has already come back to the banking system since 8 November when the Prime Minister Narendra Modi announced demonetisation of 86.4 percent of the currency in circulation overnight, according to a Press Trust of India report (read here). If this is indeed true, nearly 97 percent of the money demonetised has returned to bank counters already.
What does it mean? There are two possibilities. One, there was very little or no black money (money that isn’t earned through legitimate means or money earned well but not taxed) in cash in the system and most of it is already converted into assets such as real estate, gold or overseas financial investments. The second, tax cheats have found a way to inject nearly all the black money in cash to bank accounts through several own accounts or through benami channels including those Jan Dhan accounts owned by the vulnerable low-income people.
With all the money returning, even the last round of discussion on a speculated ‘windfall’ for the government from the note ban is dead and gone. The government had initially estimated (going by the submission of Attorney General Mukhul Rohtagi in the Supreme Court ) that only around Rs 10-11 lakh crore of money will return.
Hence, it was speculated that the remaining, ie Rs 4-5 lakh crore would be illegal money that’ll get perished outside the formal system, which will then be available to the government in the form of a surplus from the RBI. But, a clarification from RBI governor Urjit Patel later, who ruled out any such plan, weakened this theory.
Now the hard numbers conclusively tell us there is not even room for any such discussion. The public has validated all that was invalidated by PM Modi on the evening of 8 November.
Also, the process isn’t over yet. The window for majority public to deposit their old Rs 500 and Rs 1,000 notes got over by the 30 December but those Indians who were abroad during 9 November to 30 December have been given a three-month period till 31 March to deposit the banned notes, while for non-resident Indians (NRIs), the window is actually open for the six months until 30 June.
This means, there is a good possibility that even the last paise of the demonetised currency would safely return to the bank accounts and will throw a challenge to the taxman. The next task — separating the bad money from the good — is duly his responsibility. Assuming the public validates the entire lot of demonetised currency, whether the tax department has the infrastructure and resources to scrutinise the entire transactions and how much time will be needed for this exercise to show results are all questions that need answers.
As this writer has pointed out repeatedly, the tangible gains of demonetisation will come only if the taxmen manage to lay their hands on a substantiated chunk of illegal cash in the demonetisation exercise. The other gains of note ban — widening tax net, change to a cashless economy — will be visible only in the long term. If this doesn’t happen, the Modi government will find it hard to explain the gains seen against the losses to the economy and pain to common man.
But, this is one side of the picture. The other big question is that why such lack of transparency on the part of the Reserve Bank of India (RBI) to update the figure of old currency deposits. The enthusiasm with which the central bank issued back to back circulars directing public on cash deposits and withdrawals is missing when it comes to being transparent on the figures pertaining to the same subject.
The last time the central bank issued a public notification updating the amount of deposits that reached banks was in early December when it said Rs 12.44 lakh crore deposits in old currencies has reached banks as on 10 December. Almost a month has passed since then and there are no updates on the central banks website about the latest numbers, neither it has divulged the break up of the Rs 500 and Rs 2,000 notes issued to public in new currency denominations. Such lack of transparency is unprecedented in the operations of central bank on such a major economic exercise impacting most of the 125 crore people of the country.
One of the sad outcomes of the demonetisation episode is the image-crisis the RBI is fighting for giving up its autonomy and credibility. Since beginning, the RBI appeared clueless how to take the demonetisation process ahead from the beginning and faced criticism from former central bankers including Usha Thorat and K C Chakrabarty.
According to a Bloomberg report, the RBI board approved demonetisation less than three hours before Modi announced the decision in a televised address to the nation. Information on how many members favored or opposed the move isn’t “on record,” the RBI said in response to queries from Bloomberg News under the Right to Information Act, the report said. It is not clear why the details of one of the biggest ever disruptive reform steps India has seen isn’t on record. Was the RBI forced to approve the idea of demonetisation is something only time will tell.
The RBI must make public the deposit figures at the earliest. (Firstpost has filed an RTI seeking the details of the deposits in invalidated currencies, the breakup of the new currencies issued and details of consultations that led to the demonetisation announcement. We’ll update our readers on the outcome as soon as RBI responds to the RTI).
There is no reason for the central bank to act in an opaque manner in sharing the details of demonetisation process. This will only add to the confusions and strengthen the criticism that the apex bank has reduced itself to being a mere puppet of the Modi government surrendering its professional integrity and autonomy. It shouldn’t happen. The RBI should once again regain its lost virtues of transparency and independence.
(The RBI later clarified that it has already initiated this process and till this is completed any estimate may not indicate the actual numbers of the SBNs that have been returned. "...The periodical SBN figures released by us were based on aggregation of accounting entries done at the large no of Currency Chests all over the country. Now that the Scheme has come to an end on December 30, 2016, these figures would need to be reconciled with the physical cash balances to eliminate accounting errors/ possible double counts etc," it said in the clarification. It assured that it is taking all steps to complete the process expeditiously so as to release firm figures of SBNs received at an early date.)
Updated Date: Jan 05, 2017 14:31 PM