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

If one goes by the deposit trends so far and the projections, the black money expected to be purged may be much less.

By: IANS | New Delhi | Updated: December 2, 2016 9:36 am
demonetisation, payday, pay day, banks, ATMs, narendra modi, congress, salaries, banks with cash, old Rs 500 note, new Rs 2000 note In the state treasuries at the state capital, aged men and women could be seen waiting patiently for the treasury to open. (Source: File)

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. The Narendra Modi government may thus be in for a shock.

On Tuesday, in a reply in Rajya Sabha, the Minister of State for Finance, Arjun Ram Meghwal, said that there were 17,165 million pieces of Rs 500 notes and 6,858 million pieces of Rs 1,000 notes in circulation on November 8, 2016, the day Modi made the announcement of demonetising the two high denomination notes. The total amount of high denomination currency circulating in the system on that day was, thus, Rs 15.44 lakh crore (Rs 8.58 lakh crore in Rs 500 notes and Rs 6.86 lakh crore in Rs 1,000).

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.

This was the value of banned notes deposited in the banks in 18 days, out of the 50 days that the government has permitted bank customers to do so. That too, when huge queues outside banks detered many people from putting money into their accounts.
Further, all commercial banks in India have to maintain a portion of their deposits with the RBI known as cash reserve ratio (CRR). The RBI uses this to manage liquidity in the system.

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. This is cash, sent mostly in large currency notes according to bankers, by the banks on any incremental deposit that they have, thus adding to their CRR deposit held with the RBI.

Additionally, banks retain money with themselves to manage day-to-day affair and to provide money on demand by customers. According to the RBI, the average cash-to-deposit ratio of banks in India is 4.69. If four percentage points from this goes as CRR to RBI, amounting to Rs 4.06 lakh crore (on Nov 8, say), the cash with banks would average around Rs 70,000 crore. This would include all denominations, of course.

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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  1. A
    Abhinav Gour
    Dec 1, 2016 at 8:45 pm
    As has always been like, again it is the common subjects that are at the receiving end of the poorly executed whim.
    Reply
    1. P
      Prashant nalwade
      Dec 1, 2016 at 7:29 pm
      why are you uming that the CRR is held in cash?
      Reply
      1. M
        Mk
        Dec 3, 2016 at 9:29 am
        Demonetisation shocking implementation is a bad idea, killed more than 70 people. This Govt playing with dignified, self respected and hard earning people by blaming them Black money holders. They are not listening to Economist, Intellectuals.
        Reply
        1. P
          Paul
          Dec 1, 2016 at 9:22 pm
          What about fake currency from stan. You are too simplistic.
          Reply
          1. R
            Relived
            Dec 2, 2016 at 1:56 am
            It is obvious that part of the black money has already come in to the Banking system and part of it is also withdrawn !. The required Data to trace the Black money is already recorded in the Banking system, It up to the Govt. to persue the matter to it's logical end.
            Reply
            1. N
              NN Ojha
              Dec 3, 2016 at 3:30 am
              Not just the critics of demone who are busy looking for newer and newer arguments to say that the scheme is failing or has failed but even the supporters are busy looking for expostfacto validations by the hour. Both sides are highly opinionated and it is impossible to enter into a reasoned discourse with objectivity.
              Reply
              1. O
                Ompuri
                Dec 1, 2016 at 8:40 pm
                It's well known fact that this scam was to purify only ill-gotten wealth of saffron brigade. These gujrati Mafia has fooled indian public big time. Fekoo and his sidekick shah should be hanged for innocent deaths in ques to change their own little life savings.
                Reply
                1. Y
                  Yaksha
                  Dec 2, 2016 at 4:59 am
                  Very misleading article. CRR need not be in cash. Check the rbi website. It can be deposited in any of the securities accepted by RBI.
                  Reply
                  1. A
                    Akhil Vats
                    Dec 2, 2016 at 2:16 pm
                    This article is completely wrong. You can't add CRR with money in circulation.
                    Reply
                    1. A
                      Amar Anthonee
                      Dec 7, 2016 at 9:37 pm
                      With the no significant increase in economic growth, with declining national exports, with national security failure and demonetization failure, Modi is only as strong as his Hindutva agenda.
                      Reply
                      1. B
                        Bharat
                        Dec 3, 2016 at 4:41 am
                        CRR is a component of reserve money(M0), which is equal to currency in circulation CRR that sits in vaults of RBI or banks. This fact can be checked at RBI website.lt;br/gt;lt;br/gt;PressReleaseDisplay.aspx?prid=38679lt;br/gt;lt;br/gt;As of March'16- Total reserve money (M0) was 21.8 Trillion = 16.6 (Currency in circulation) 5.2 T ( Banks deposits with RBI).lt;br/gt;lt;br/gt;Author has conveniently umed CRR to be part of currency in circulation to push his political argument. It is hard to say if he is ignorant himself or just thinks his readers are ignorant and is trying to trick them like this money puzzle.lt;br/gt;lt;br/gt;lt;br/gt;lt;br/gt;In any case- this is a really bad journalism. No harm in having political views, but newspapers should avoid spreading lies.
                        Reply
                        1. B
                          Bharat
                          Dec 3, 2016 at 4:32 am
                          CRR is not part of currency in circulation. It is a component of reserve money(M0)- which equals Money in circulation and above component that sits in vaults of RBIlt;br/gt;lt;br/gt;PressReleaseDisplay.aspx?prid=38679lt;br/gt;lt;br/gt;Author has conveniently umed CRR to be part of currency in circulation to push his political argument. It is hard to say if he is ignorant himself or just thinks his readers are ignorant and is trying to trick them like this money puzzle.lt;br/gt;lt;br/gt;lt;br/gt;lt;br/gt;In any case- this is a really bad journalism. No harm in having political views, but newspapers should avoid spreading lies.
                          Reply
                          1. B
                            Bharat
                            Dec 3, 2016 at 4:45 am
                            Sorry for multiple posts on same topic- Reposting because web URLs were not getting reflected in original message.lt;br/gt;lt;br/gt;CRR is a component of reserve money(M0), which is equal to currency in circulation CRR that sits in vaults of RBI or banks. This fact can be checked at RBI website.lt;br/gt;lt;br/gt;As of March'16- Total reserve money (M0) was 21.8 Trillion = 16.6 (Currency in circulation) 5.2 T ( Banks deposits with RBI).lt;br/gt;lt;br/gt;Author has conveniently umed CRR to be part of currency in circulation to push his political argument. It is hard to say if he is ignorant himself or just thinks his readers are ignorant and is trying to trick them like this money puzzle.lt;br/gt;lt;br/gt;"I saw a Jeans for Rs97. I dont have enough money , so i borrowed Rs50 from my mom and 50 from my dad = Rs100. I bought the jeans, and had Rs3 change. I gave dad Rs1 and my mom Rs1 and kept the other Rs1 for myself. Now I owe my mum Rs49 and my dad Rs49. 49 49 = 98 my Rs1 = 99. Where is the missing Rs1?"lt;br/gt;lt;br/gt;lt;br/gt;In any case- this is a really bad journalism. No harm in having political views, but newspapers should avoid spreading lies.
                            Reply
                            1. D
                              dd
                              Dec 1, 2016 at 5:52 pm
                              IE reporters are worst than CROOKs...they are interested in Ma news..
                              Reply
                              1. D
                                deeteeN
                                Dec 2, 2016 at 5:45 am
                                crooked article, CRR need not be all cash! another attempt to spread falsehood
                                Reply
                                1. I
                                  Insight
                                  Dec 1, 2016 at 7:20 pm
                                  The weakest link (guess work) is "there are 30 days. the rate at which money..... 2 lakh crores will be deposited". No most of the deposits of old currency have already come. The queues in banks now are for withdrawing cash. This reporter is dishing out his own views, not news.
                                  Reply
                                  1. K
                                    Kannada First
                                    Dec 1, 2016 at 8:31 pm
                                    Before jumping to premature and prejudiced conclusions, all should seal their b**** till December 30. You have w life to dissect and redissect the issue and palya with different numbers to suit your argument against the Black money clean up move.
                                    Reply
                                    1. R
                                      rishi
                                      Dec 1, 2016 at 9:25 pm
                                      Which is perfectly right .....there indeed would be no blackmoney anymore after this "lethal" attack of demonetisation on it with such brilliantly conceived, planned and implemented affirmative action of NDA Govt. towards strengthening our economy by first getting rid of the blackmoney as a source of the parallel economy which is obstructive to our development efforts. There is no shock to anyone but excitement in the success of demonetisation !
                                      Reply
                                      1. R
                                        rishi
                                        Dec 1, 2016 at 9:32 pm
                                        what was intended to be achieved has already been achieved.....the compulsive critics including those who are making comments in the websites or on tv-channels will never get to know the inside story or would never admit the hard success of demonetisation the secrecy with which it was implemented as a potently lethal weapon against blackmoney . Time will make the results visible to those who wish to see the Nation grow.....others will keep screaming at the loss of their illegal-cash-turned trash !
                                        Reply
                                        1. G
                                          gc
                                          Dec 1, 2016 at 9:40 pm
                                          The calculations and umptions in this article are wrong,however,even if one considers everything this article is saying is correct,you can not deny that every single 500 and 1000 rs note WILL NOW COME INTO SYSTEM or will be destro.It does not an economist to foresee the benefits of this single effect alone.Don't need to discuss any further.
                                          Reply
                                          1. G
                                            gc
                                            Dec 1, 2016 at 9:32 pm
                                            WRONG. Black money is untaxed money or unaccounted money so CRR (Money that was already in the banks is already accounted money) so do not include it in 'money in circulation'. That makes money in circulation 11 crores. Out of that about 20% was supposed to be 'black' money. That is about 2 lakh crores. NOW 50% OF THAT MONEY WILL COME INTO THE SYSTEM as there are various ways to turn that into white e.g. depositing 2.5 laks,paying 'advance tax',etc etc.THIS DOES NOT MEAN IT IS SMALL BENEFIT, although that money has not been 'destro' BUT IT HAS COME INTO THE SYSTEM.The rest about 1 lakh crore will be 'destro'. 1 lakh crore is not a small amount of money.IT IS HUGE.The figure of 4 lakh crore of black money was speculated by TV studio economists not the government. Then you can start counting the OTHER benefits of this exercise, which are far more important.SO you can twist numbers for your agenda,but the truth is that this move will change the course of the nation for better.
                                            Reply
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