Demonetisation: Undeposited old notes may result in windfall for government

Some of the funds may be used for reacapitalising public sector banks.

Written by Aanchal Magazine , Sunny Verma | New Delhi | Updated: November 17, 2016 1:36 pm
demonetisation, modi, pm modi, narendra modi, india demonetisation, currency ban, old currency, 500 note ban, 1000 note ban, atms, demonetisation effect, indian express, national news, india news The central bank will have to see how to manage this money that does not enter the banking system,” a finance ministry official said. (File Photo)

The amount of old Rs 500 and Rs 1,000 notes that are not deposited or exchanged with the banks can result in a windfall to the government, but senior finance ministry officials said the government has not yet thought about how to account for it or how to deploy it.

Some of the windfall may come to the government in a staggered manner and can be used for reacapitalising public sector banks, official said. Currency issued is a liability for the Reserve Bank of India (RBI), which owes a particular value to its holder. Any money not coming back to the banking system will reduce the central bank’s liability to that extent. “Pulling out the old notes may theoretically result in a windfall gain, as the reserve money will shrink to extent of old currency not flowing back into the system. The central bank will have to see how to manage this money that does not enter the banking system,” a finance ministry official said.

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Another ministry official said the government has so far not thought about how to account for such gains, and any gains if at all will accrue from the next financial year only. Gains will also have to deployed in a calibrated manner, officials said.

The RBI may transfer such gains to the government via payment of dividend or may chose to keep it in reserves. “Some of the value of Rs 500 and Rs 1000 notes that are not deposited may come to the government in the form of dividend. But all this will have to decided once we know how much amount remains unclaimed from the notes that are reprinted,” the official said.

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Even at the time of demonetisation in 1978, 25 per cent of the cash with public did not return to the banking system. SBI in its research report said around Rs 2.5 lakh crore or more may not be converted around this time. Around Rs 15 lakh crore worth of Rs 500 and Rs 1000 notes are in circulation in India. Kotak Securities Ltd said in a report on Wednesday that the RBI may be calibrated in its payment of any surplus accruing from any unaccounted cash.

“As of now, there is no cut-off date for submission of the notes with RBI after the December 30, 2016 deadline with the banks. Once the cut-off date is announced, RBI can account for it in its balance sheet. In case, a cut-off date is not announced, RBI has the option of gradually adjusting its balance sheet without any significant market impact,” it said.

There is uncertainty regarding the legalities and procedures that will be applicable in this case, especially if the magnitude of unaccounted currency is large. But the gains to the government will be gradual and staggered keeping in view the market implications, Kotak Securities said. It is unclear whether any legislative change is required to allow RBI to book gains from a liability, which is ‘undeclared’ and for which assets have already been created.

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  1. I
    Indian
    Nov 17, 2016 at 3:35 am
    Govt should fulfil promise of Rs 15 lac per person. Thanks.
    Reply
    1. D
      Dotcom
      Nov 17, 2016 at 6:34 am
      Demonetization is good for the country, planning and execution for doing it is very poor by the government. Also government should fulfill its promise of 15 LAC per person as per their commitment during the elections. This will show the good intentions behind the demonetization drive.
      Reply
      1. H
        Harshit
        Dec 17, 2016 at 11:37 am
        Andha bhakt spotted pukin slangs
        Reply
        1. H
          Harshit
          Dec 17, 2016 at 11:37 am
          Where are you from Thomas George? Antarctica?
          Reply
          1. A
            avd
            Nov 17, 2016 at 8:44 am
            There is fear in the minds of those politicians having black moneys that here onward it is difficult to get commissions,bribes, favours due Modi Govts'Policy of Transfer-ant business from businessmen unlike UPA Govt where scams,corruption used to be normal Saradha Group Financial Scanda and many other scams in WB made TMC leaders more worried.That is why they are aggressive in both Lok Sabha and Rajya Sabha.
            Reply
            1. A
              ashok s
              Nov 17, 2016 at 3:40 am
              Govt dividend is netizens dividend for we have suffered a lot so govt should either reduce prices of essential commodities or give cash compensation to each netizens , but excluded high net worth individuals
              Reply
              1. A
                ashok s
                Nov 17, 2016 at 3:42 am
                Or suspend locker facilities and bring gold laying hidden unused to bank deposit system and pay a nominal intetest
                Reply
                1. A
                  ashok s
                  Nov 17, 2016 at 4:22 am
                  The dividend can or will be used in state funding of elections. No donations , no overspending , no fools promises etc . bring your expences chart or quotation and take required money from election comm
                  Reply
                  1. V
                    VEERARAGHAVAN KV
                    Nov 17, 2016 at 8:20 am
                    After Jan. 2017 if govt.transfers 1 lac to each account , then all will open account in bank.
                    Reply
                    1. G
                      gopal
                      Nov 17, 2016 at 3:54 am
                      oh IE no ve articles from your side on demonetization...please be on other side..please criticize, abuse and insult the present central govt for this action..why are you so intolerant now?
                      Reply
                      1. A
                        Armpit
                        Nov 17, 2016 at 6:59 am
                        Lobhee kutta
                        Reply
                        1. M
                          mumbikar
                          Nov 17, 2016 at 4:30 am
                          it will never be accounted for !!!! we, the people will forget about it and even if we still remember, we cannot ask questions, remember ?
                          Reply
                          1. R
                            R.Mehta
                            Nov 17, 2016 at 4:45 am
                            When with large number of banks all over India ,the people have problems in transacting with banks ,then why after 30thDec. ,the amount to be deposited in RBI.The govt should aloow the people to deposit money in their respective accounts only ,if somebody has the same and wants to deposit.RBI having only few branches all over india ,how can people be expected to reach and transact there.The object of the govt. is that money should come in banking system ,then why people be inconvenienced by having option to go to RBI only after 30th .As the banks are not in a position to make arrangement for accepting money from people and will not be able to allow people to make their deposits ,they should be allowed to collect money after 30th Dec also,as is being done now.
                            Reply
                            1. O
                              OmKar
                              Nov 17, 2016 at 7:26 am
                              dood move
                              Reply
                              1. R
                                Rajeev
                                Nov 17, 2016 at 7:18 am
                                All you who calling this good move would come to know when the Economy would go down to Sed Bed and start loosing Job after a period of 3-6 months when the Economic Activities would reduce and deflation would prevail with higher level of Price for Food to Vegetable. Bhakto jago this is no doubt a very good move with right intent but the question is total failure on implementation of Fekus idea.
                                Reply
                                1. J
                                  Joy
                                  Nov 17, 2016 at 8:38 am
                                  What about that fifteen lakhs?
                                  Reply
                                  1. R
                                    r
                                    Nov 17, 2016 at 5:07 am
                                    Cry Anti national. You are either C or M.
                                    Reply
                                    1. R
                                      rajan luthra
                                      Nov 17, 2016 at 5:57 am
                                      Mone will not squander away their richness; only those lacking resourcefulness would be the losers.
                                      Reply
                                      1. R
                                        Radhakrishnan Ambat
                                        Nov 17, 2016 at 5:44 am
                                        While this looks more like a technical accounting issue for the government (and Reserve bank), I would think that the reduction in liquid currency floating around in the economy will reduce inflation, bring down prices (commodities, services, real estate etc) and that will definitely be a benefit to the common man.
                                        Reply
                                        1. R
                                          Rogger
                                          Nov 17, 2016 at 11:30 am
                                          I think many people have diffrent way of understanding this demonetization lt;br/gt;Well let us understand.lt;br/gt;250000 is tax free income for 1 year per individual.lt;br/gt;Still poor people or villager even many small traders no have tax plannings.lt;br/gt;They have earned in 5 years saylt;br/gt;2.5lac x5 =12.5 lac.lt;br/gt;And saved 5 lac for dughter marriage in form of gold cash or small savings in hand.lt;br/gt;Now if govt say to exchange only 2.5 lac they scared there white money is considered black which they saved in past 5 yrs.lt;br/gt;So evey cash is not black.lt;br/gt;What are the bad effects of thislt;br/gt;No circulation of funds result in no income no income tax no jobs no industrial growth no economy growth.lt;br/gt;Need more discussion to allobrate
                                          Reply
                                          1. H
                                            Harshit
                                            Dec 17, 2016 at 11:40 am
                                            I fail to understand why political parties are allowed to handle cash when necessities like railways, busses, farmer's market are not allowed... Political parties who accept cash should get a form with the depositor's PAN and aadhar along with his families details so that multiple donations can be linked...lt;br/gt;lt;br/gt;At best this is another attempt to continue with black money under political patronage while the common people suffers...
                                            Reply
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