Demonetisation: RBI data shows 99% of banned notes returned; it was indeed a failure

It is official. Demonetisation, which was touted to be a big reform and is alleged to have resulted in deaths of citizens, has failed. Though no authorities have admitted it yet, the Reserve Bank of India's data proves so.

As per the data released by the RBI in its annual report on Wednesday, of the Rs 15.44 lakh crore of notes taken out of circulation with demonetisation of Rs 500 and Rs 1,000 notes on 8 November, Rs 15.28 lakh crore returned to the system by way of deposits by the public.

Reuters

According to the annual report for the last fiscal, 89 million pieces of the banned Rs 1,000 totalling Rs 8,900 crore had not been returned, out of 6,858 million such notes. This amounts to 1.3 percent of the Rs 1,000 notes in circulation before the demonetisation announcement on 8 November 2016.

"Subject to future corrections based on verification process when completed, the estimated value of SBNs (specified bank notes) received as on June 30, 2017 is Rs 15.28 trillion," the RBI said in the report.

According to the central bank, some of the SBNs received are still lying in the currency chests.

"The value of the SBNs received by the currency chests has been credited to the banks’ account on “said to contain basis”. Till such time these notes are processed by the Reserve Bank for their numerical accuracy and authenticity, only an estimation of SBNs received back is possible," the report said.

Moreover, it also points out that there are notes received from district cooperative banks and other countries such as Nepal.

"As such, Reserve Bank is in discussion with Government of India with regard to the acceptance or otherwise of SBNs held by citizens/Financial Institutions in Nepal. Therefore, the value of notes in circulation is subject to adjustments to be made after the completion of the verification process of the SBNs received as also for the notes to be received from DCCBs and Nepalese citizens/ Financial Institutions," it said.

So in a nutshell, chances are the amount of notes returned to the system is likely to go up further.

However, many experts have noted that data shows the exercise was an utter failure.

After announcing the demonetisation of currency notes, it was said the government estimated at least Rs 3 lakh crore would not return to the system. This would mean an equal amount black money would get extinguished and liability of the RBI would reduce.

But with the data suggesting return of 99 percent of the money to the system, one can safely assume that the black money, instead of getting extinguished, has whitened.

Firstpost's Dinesh Unnikrishnan explains in this article, the dynamics of such a scenario.

One thing is for sure, with the crucial data now out, the government and the RBI will have to answer many uncomfortable questions.