December 2, 2016

Demonetisation’s rude shock: There may not be any black money

Source: http://indianexpress.com/article/business/banking-and-finance/demonetisations-rude-shock-there-may-not-be-any-black-money/

The main reason given by the government for demonetising high denomination notes was to curb black money. Various estimates have been made of the quantum of such money which is not expected to be deposited in banks ranging from Rs 3 lakh crore to Rs 5 lakh crore. But if one goes by the deposit trends so far and the projections, the black money expected to be purged may be much less.
On November 8, the total amount of actual cash with the RBI as CRR was Rs 4.06 lakh crore (Rs 4,06,900 crore), according to the weekly bulletin of the central bank.

On November 28th, the Reserve Bank of India announced that Rs 8.45 lakh crore (Rs 8,44,962 crore) in the banned high denomination notes had been deposited in the banks between November 10 and November 27. Banks were closed on November 9

So, if we take the money deposited in 20 days and add the November 8 CRR to it, that amounts to Rs 12.50 lakh crore. If we further add a portion of the cash-in-hand on November 8, say Rs 50,000 crore, the total amount of money which is not with public in old notes is Rs 13 lakh crore.

There are still 30 days left to deposit banned currency notes. At the rate at which money is being deposited, it stands to reason that Rs 2 lakh crore or more would come into the system till December 30, thus throwing to the winds all calculation of the government to tackle black money. Either the black money is not in high denomination notes or those who have such money may already have put it back into the banking system.

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