How much of the high denomination currency demonetised on November 8, 2016 is back with the Reserve Bank of India? Everyone wants to know but the answer eludes all. The finance minister, in a written reply to the Rajya Sabha on July 25, said that the bank is in the process of reconciling the notes to obviate any errors. He added that RBI’s machine processing capacity is being augmented. Incredible that it is being done at this late stage. Also, the answer will not be available any time soon.
The implications of the delay are many and go beyond the failure of demonetisation to tackle black money. For instance, there is a link of this with the extent of counterfeit currency and its detection or with the case pending in the Supreme Court regarding granting one more chance to return the demonetised notes to those who, for genuine reasons could not return them, and therefore stand to lose a part of their wealth.
According to media reports, by early January 2017, more than 90 per cent of the demonetised currency notes had returned to the banks. According to this author, RBI’s data on currency in circulation with the public implies that 98.8 per cent of the notes had been returned. So what is there to reconcile and how much is there to count? Why the new machines now?
Could it be that the surrendered notes are being recounted because of errors committed earlier? But recounting what? It was reported in November 2016 itself that all the notes surrendered are being shredded and given to a company in Kerala to be converted into briquettes. If this process has been going on, then recounting is meaningless and reconciliation impossible. When did shredding stop and the recounting start? What can be achieved by recounting the remaining notes which are not shredded?
Recounting seems to be posing an acute problem since the RBI governor, appearing before the Rajya Sabha Committee on July 13, said that counting is going on and information will be provided at the earliest. His deputy informed the committee that the RBI had 59 machines and had hired seven more and has floated tender to buy more machines. According to reports, he added that the delay is also due to notes from Nepal and those lying with the cooperative banks, which were earlier not allowed to deposit them with the RBI.
By January 13, only Rs 18,000 crore worth of notes had not been returned. Reports indicate that the cooperative banks have Rs 8,000 crore of the old notes which they can now return. Further, between January 1 and March 31, certain specified category of people could deposit their old notes.
So out of the Rs 15.44 lakh crore of high denomination notes with the public on November 8, 2016, less than Rs 10,000 crore of notes may not have come back (or less than 0.6 per cent of the total). Is this what is embarrassing for the government? The implication is that most of the black hoards of cash have been returned to the banks and possibly converted into new currency notes. With the availability of the new Rs 2,000 notes, it is now even easier to hold black cash.
Could the RBI not have given data on whatever it has recounted and told the pubic how much remains to be recounted? After all, data on notes returned and the new notes issued was regularly given up to December 12, 2016. This could have been extended up to March 31, 2017 which was the last date for NRIs and some specified category of people to return the notes they could not deposit earlier. Is it that data is not being released because perhaps more notes have come back than were issued by the RBI?
What an embarrassment that would be for the government which was expecting 20-30 per cent of the notes to not return. How is it possible that more notes are returned than were issued? Only if the fake currency floating around has been accepted by the banks. There has been speculation that counterfeit currency in large amounts was also returned to the banks and they could not control/check that due to the extraordinary pressure of work. Collusion is also possible. It is not going to be easy to check which banks or their branches colluded in accepting the counterfeit notes since currency was flooding at an extraordinary rate.
How much of the counterfeit currency was in circulation? According to a government commissioned study, reported in Parliament, there was Rs 400 crore of counterfeit currency in circulation. The RBI in its annual reports mentions the amount of fake currency notes caught every year. These are small numbers compared to the total currency in circulation. But it is likely that what is circulating is a large multiple of what is caught. So, if more than Rs 10,000 crore of fake high-denomination currency notes were circulating in the system on November 8, 2016 and if most of it came back to the banks then the portents would be grim. More currency would have been returned than was printed.
There is a case pending in the Supreme Court asking that one more chance be given to change old notes for new ones to those who still have some demonetised notes left with them. The government has opposed this on the ground that this relaxation would lead to the failure of the entire scheme of unearthing black money via demonetisation. But, if most of the currency is back or if more has come back, then how has the scheme helped unearth black money? Perhaps a thousand crore (0.06 per cent of the currency) may be left with those who are old or infirm or had forgotten the cash left at home and they stand to lose their hard-earned savings.
How can the scheme fail if this tiny amount does come back? Or, is it that with this amount coming back the total of returned notes would exceed the amount of notes issued? So, is the non-transparency only to avoid a huge embarrassment and loss of credibility? But for how long?
The writer is a former professor of economics, JNU