How 'black' is this 'white'?
While the government has left no stone unturned to create an impression of being proactive in tackling the black economy, the Reserve Bank of India (RBI) has admitted that almost 99 per cent of demonetised Rs 500 and Rs 1,000 currency notes have returned to the Central bank. Contrary to the government's claims that a significant amount held by people would not come back to the banking system, the RBI figures indicate that only a negligible amount of unaccounted money was held in cash by those trying to conceal it. The RBI had made known in its annual report that notes worth Rs 15.28 lakh crore were deposited by people as on June 30, 2017, and notes worth only Rs 16,000 crore were not returned out of the total value of Rs 15.44 lakh crore SBNs (special bank notes of Rs 500 and Rs 1,000) in circulation till the date of the announcement of scrapping these notes. The report further indicated that the share of the newly introduced Rs 2,000 bank notes in the total value of the currency in circulation was 50.2 per cent at March-end 2017. The RBI report further indicated that detection of fake notes was 20.4 per cent higher than the previous year. Not only that, the cost of printing new notes was Rs 7,965 crore during the period July 2016-June 2017 indicating that the Central bank spent nearly half of Rs 16,000 crore, not returned after notebandi, on printing new notes to replace the scrapped ones. After demonetisation, circulated currency declined by about Rs 8,99,700 crore, causing a large increase in surplus liquidity in the banking system and a slash of approximately nine per cent in the cash reserve ratio. "This, in turn, posed a formidable challenge to the Reserve Bank's liquidity management operations. Remonetisation continues to progress at a steady pace with an enhanced focus on printing and distribution to meet the currency demand," categorically says the RBI report.
Demonetisation had created a liquidity crunch in the country with long queues outside banks for new notes and severe hardship across the country. With a sharp dip in demand and GDP growth diving close to two per cent, demonetisation had virtually hit the economy below the belt. It may be noted that as on November 8, 2016 — the Demonetisation Day — there were 1,716.50 crore and 685.80 crore pieces of Rs 500 and Rs 1,000 notes in circulation respectively. The government allowed people to deposit and exchange these notes at banks till December 30, but the facility of exchange of old notes was stopped by them at bank counters on November 24. Not only that, on December 28, two days before the earlier deadline for depositing scrapped notes, the Cabinet approved promulgation of an Ordinance to make possession of a large number of scrapped bank notes a penal offence that would attract a monetary fine. The RBI report, however, has generated a new debate in favour and against of demonetisation. Defending demonetisation, the Prime Minister had recently said that after the note-ban nearly Rs 300,000 crore had come to banks – which were out of the banking system prior to notebandi and more than Rs 200,000 crore of black money had reached the banks. He also said that around 18 lakh people with disproportionate income were under government scrutiny. Corroborating similar views, Finance Minister Arun Jaitley said that confiscation of money was never the objective of the demonetisation exercise and only those, who always hoodwinked the people on the issue of black money, were now trying to create confusion. He asserted that the government had met its principal objectives of reducing the reliance on cash in the economy, while also expanding the tax base and pushing for digitisation. He further said that the impact of the note-ban on terror activity can be clearly seen in terror-infested states like Chhattisgarh and J&K – where a large number of stone throwers are no longer active, as they are now no longer getting the money required for that. On the other hand, while just after demonetisation, former PM Manmohan Singh had criticised the move and termed it as a case of 'monumental mismanagement', former Union Finance Minister P Chidambaram has also slammed the Reserve Bank of India for recommending demonetisation. CPI (M) General Secretary Sitaram Yechury also questioned the need for such an exercise when it failed all its stated objectives: combating corruption, black money, counterfeit currency, and terrorism.