No Black Money in India?

Here is a shocking possibility that there may be no black money hoarded in India. At least, that is what two reports seek to show convincingly, quoting government’s own data.

The IANS Story

According to an IANS story published by the Indian Express, the government may have a rude shock to find that there is no or negligible amount of black money hoarded in India. At least, that may be the outcome the data as on 30 Dec 2016 can reveal. Here goes the story.

According to various estimates, black money was pegged at amounts ranging from Rs 3 lakh to Rs 5 lakh crore. On Nov 8, the value of Rs 500 and Rs 1000 notes in circulation was Rs 15.44 lakh crore. Out of this, as of Nov 28, the RBI said, Rs 8.45 lakh crore was deposited between Nov 10 and Nov 27 (banks were closed on Nov 9).

Commercial banks are required to keep a cash reserve ratio (CRR) @ 4% with the RBI. On Nov 8, CRR was about Rs 4.06 lakh crore, deposited mostly in high value notes. The cash-to-deposit ratio is 4.69%, which leaves 0.69% with the banks as cash in hand, which works out to approx Rs 70,000 crore.

The sum of CRR and cash deposited in 20 days is approx Rs 12.50 lakh crore. If you add Rs 50,000 crore from cash in hand, the total amount of high value notes not with the public works out to Rs 13 lakh crore.

At rate at which old notes are deposited or exchanged since Nov 8, Rs 2 lakh crore or more can come to the banks in till Dec 30, taking the total to above Rs 15 lakh crore, “thus throwing to the winds all calculation of the government to tackle black money”.

This report says, “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”.

The Wire Report, Quoting Economist Arun Kumar

Economist Arun Kumar estimates that over 95% of the old high value notes may come back to the banking system. The government had estimated that up to Rs 3 lakh crore of these notes may not come back into the system.

As of Dec 1 2016, nearly Rs 11 lakh crore of the old Rs 1000 and Rs 500 notes were back in the banking system, with about a month more left to deposit the old notes. According to the report, small and medium scale businesses, which hold 40% to 50% of the demonetised notes, have found ways to push back money into the system.

He further reasons that the sudden increase of deposits in Jan Dhan accounts, the entire amount of Rs 29,000 crore is from just 3 crore accounts out of the total 25 crore Jan Dhan accounts. That means, 3 crore Jan Dhan accounts were used to launder money. Had these been genuine deposits, they would have been spread evenly across 25 crore accounts, not just 3 crore accounts.

My Take

The sudden announcement of demonetisation was an rude shock to most people. They invented ingenious ways to exchange/deposit their money.

One of the ways people found was to buy gold from jewelers who reopened shops and continued selling their stocks till they lasted on the night of Nov 8/9, charging exorbitant prices.

There are reports of people using the bank accounts of others, apart from Jan Dhan accounts as mentioned above. There were millions of bank accounts which were either dormant or rarely operated accounts many of which could be used by hoarders. Also, there were such accounts offered on hire.

Then there were some bank officials who colluded with money hoarders to exchange notes illegally, and many such officials were caught red-handed.

Temple accounts and accounts in cooperative banks were misused. Post offices, railway, petrol pumps and many other agencies were authorized to exchange/receive banned notes. Taxes and bills of utilities such as electricity and some others could be legally deposited using banned notes.

Practically every department of the central and state governments was involved in exchange/deposit of invalidated currency. All these present several millions of legal and illegal opportunities to launder money for those who really had black money. And they used the available opportunities.

Those who suffered untold hardships were the poor people and those who were not black money hoarders.