Demonetisation Update: RBI Report Reveals Return of 98.96% of Demonetised Notes in India, Check Details Here
According to the Reserve Bank of India’s (RBI) annual report released on Wednesday, it has been revealed that 98.96% of the invalidated ₹500 and ₹1000 notes have been returned by the end of June. This report puts to rest one of the major mysteries surrounding the demonetisation exercise, which some analysts believe played a role in the Bharatiya Janata Party’s landslide victory in this year’s elections in Uttar Pradesh.
The RBI annual report states that the estimated value of the banned notes it “received” was ₹15.28 trillion, subject to future corrections based on the verification process. This amount is slightly lower than the ₹15.44 trillion worth of invalidated notes that were in circulation as of November 8, according to data provided by the Minister of State for Finance in January.
Initially, it was estimated that around ₹3 trillion of the demonetised notes would not be returned to the banking system, as it was believed to be unaccounted or black money. However, by December, it had become apparent that tax evaders had found ways to legalize their unaccounted money by making deposits through proxies and mules, making high-value purchases using back-dated bills, and colluding with bank officials to exchange old currency.
With the RBI’s data showing that most of the demonetised money has returned to the system, the opposition has criticized the government, with the Congress claiming that the report is proof that demonetisation has “utterly failed”. However, Finance Minister Arun Jaitley argues that measuring the success of demonetisation solely based on the amount of cash that has returned is an inadequate understanding of the exercise.
Former Deputy Governor of RBI, R. Gandhi, believes that the fact that all the demonetised money has returned indicates that black money has been fully accounted for. He adds that it is now the responsibility of the tax department to take appropriate action. In January, the government decided to use data analytics to identify individuals whose deposits did not match their known sources of income.
RBI’s annual report also shows a significant increase in the number of suspicious transaction reports filed by banks, financial institutions, and intermediaries. The number of such reports filed in 2016-17 was 361,214, compared to 61,361 the previous year. This increase suggests that people have been forced to deposit money that was illegitimately in their possession. However, some of these transactions could still be genuine.
Jaitley defends demonetisation by stating that it has achieved its main objectives, including moving towards a “less cash economy”, digitization, formalization of the economy, widening the tax base, curbing terror financing, tracking black money, and cracking down on counterfeit currency.
The RBI report also reveals that the volume of cash in the banking system has decreased by 17%. The total currency in circulation has fallen from ₹17.77 trillion on November 8 to ₹14.75 trillion on August 4, according to the finance ministry.
Furthermore, demonetisation has led to an increase in digital transactions. The finance ministry notes that the number of digital transactions rose by 56% between October 2016 and May 2017, reaching 1.1 billion transactions.
In terms of counterfeit currency, RBI detected 762,072 fake notes compared to 632,926 notes the previous year. However, the total value of these counterfeit notes amounts to only ₹43 crore.
The ministry’s note also highlights that demonetisation has resulted in a 24.5% increase in the number of income tax returns filed as of August 5.
Lastly, the RBI annual report provides insights into the costs of the demonetisation move. The decrease in income and increase in expenditure effectively halved RBI’s net profit from ₹65,880 crore to ₹30,663 crore compared to the previous year. The central bank transferred almost its entire profit to the government.
