Disclaimer: I am not at all knowledgeable on the subject. This is a question based on the reading I’ve been doing about demonetisation.
One of the objectives of demonetisation was curbing black money or money that tax should be paid on, but isn’t. Going in, no one appears to have had an idea of how much black money was in the form of cash. Many people speculated that the money that didn’t get deposited in banks would be black money.
I understood this to mean that the RBI had issued 14 lakh crore worth bank notes. Of these, 30% or about 5 lakh crore 1.6 lakh crore [see update below] were estimated to be with various governments, government organizations and banks. That left 9 lakh crore 12.4 lakh crore to recover as deposits in the banks and RBI.
Initially the thought seemed to be that the amount out of the 12.4 lakh crore that didn’t return to banks would be black money. Various theories were discussed – whether they could be written off or not, used to recapitalize banks or not… not going there for now. But basic concept was that if – hypothetically – 9 lakh crore got deposited by 30th December (and then 31st March with RBI?), the remaining 3.4 lakh crore would be the black money. Now logically, at least some notes won’t return – maybe lost in floods or forgotten in some old purse or whatever. But any significant number (no idea how much that would be) is black money
Yesterday, on the 28th of November 2016, with over a month still left for people to deposit money into banks, the RBI announced that money deposited or exchanged at banks had reached 8.5 lakh crore. This means that thee is supposed to be at the most 0.5 3.9 lakh crore out there. However queues outside banks are still reportedly going strong.
My question is, if, in less than half the time allocated for deposits, we have already recovered most of the notes issued by the RBI, what happens in the remaining duration of slightly more than a month?
Never mind black money. What happens if the notes deposited into banks exceed 0.5 3.9 lakh crore, bringing the total of cash over the 14 lakh crore in notes issued by he RBI? It seems possible, given that the queues are still going strong and that in less than half the time provided, deposits are over 72% of those expected in “ideal” conditions in the full duration provided.
Would that mean that the demonetisation likely converted fake notes into legal money and still found no black money? What would it mean for the liability of the RBI (I haven’t fully understood how the liability thing works, but clearly it is a careful balance).
What would the implications of something like that be?
Update: Sonali Ranade pointed out that some of the 5 lakh crore reported to be with banks and government may have an overlap with money getting deposited in banks. Notes with banks will not, but notes with government organizations like Railways, for example will get deposited in the SBI and be counted again. What this amount is is unclear. Trying to find out.
Update 2: While the money with government and banks was estimated to be at 5 lakh crore, there is a better way of estimating money already with banks alone. An interesting piece by Ira Duggal for Bloomberg-Quint uses RBI reports to arrive at the money in bank chests being Rs. 2.5 lakh crore on the 11th of November. Roughly estimating 86% of this to be in the banned notes, the money in banned notes already with the banks on 11th November would be 2.15 lakh crore. Deduct the 53,000 crore reported by the RBI as deposited within the first 2 days, and you have an estimated 1.62 lakh crore in banned notes with the banks at the start of demonetisation.