Demonetisation (EPISODE 420)

The black comedy of Demonetisation continues and the Governor of the Reserve Bank of India is now the latest clown in the show! In an astounding statement before the Parliamentary Standing Committee on Finance on July 6th 2017, the Governor of the Reserve Bank of India (RBI) said that he could not give them an official number as to how much money was deposited in old demonetised notes because counting was still in progress! This beats all logic. At each and every step from the first bank counter where citizens deposited these demonetised notes, they have been counted numerous times and so definitely a number exists as to how many of such notes have been deposited. All the banks have submitted data not only on the total amount of money deposited but also the details of bank accounts in which more than the prescribed limits for such deposits have been made. So the data is definitely there with the bank and the final counting of the notes at the RBI central office will not alter that data in any significant way.

Then why is the RBI not revealing the data as to how much demonetised money was deposited even after more than six months have elapsed since the deadline for such deposits? The main reason is that contrary to the expectation that at least half, if not more, of the demonetised notes would not be deposited, almost all and according to some who are privy to the data even more than the total notes officially in circulation were deposited!! The rough estimate that the RBI had was of Rs 15 lakh crore or so of demonetised notes but it turns out that more than this has been deposited. This is embarrassing for the RBI because it hints at serious lack of oversight in printing and distributing notes if more than the estimated supply is actually in circulation.

The expectation of the Government was that people who had unaccounted for money would not deposit it in the banks as they would then become exposed as tax evaders and have to pay heavy penalties. But the people hoarding black money are so greedy that disregarding the consequences of doing so, they deposited all their money very much in excess of the Rs 2.5 lakh limit set by the RBI. In many cases dummy people with very little income were found and cash deposited in their accounts too. Apart from this there are many shell companies which are regularly used to layer transactions and convert black money into white and the accounts of these companies were also used to deposit black money.  In this way instead of the bonanza that the Government expected in the form of a huge cache of demonetised notes that would not be deposited leading to their value becoming an asset in the books of the RBI, the whole process has turned into a liability that is now being sought to be hidden behind the absurd fig leaf that the notes are still being counted!! Not surprisingly the Government has vehemently opposed the Supreme Court’s suggestion that a window be opened again to allow some people who might have missed depositing their notes in the earlier period. The Government is saying that people unscrupulously resorted to various stratagems and deposited more notes than were actually officially in circulation and they would misuse this new opportunity also!
The Income Tax department initially listed about 18 lakh individuals who had deposited more than Rs 2.5 lakhs of demonetised notes and sent them notices by email to explain how they had so much money. Very few of these people responded to these notices and the IT Department too, like the RBI, has become reticent and is not revealing any numbers!! But in bits and pieces it is coming out that not only has a lot of money been so deposited but they have also been deposited in bank accounts which had not been declared by these people in their earlier income tax returns. Thus, now the Government is claiming that due to the demonetisation exercise all this tax evasion has been detected and can now be acted on by the IT department because when these people file their returns for Assessment Year 2017-18 they will have to account for all this money in all these bank accounts and if they cannot do so then they will face penal action. Simultaneously action has been taken against shell companies and lakhs of them have been deregistered by the Registrar of Companies which has sent this data to the IT department for action after reconciling it with the data on the huge deposits of demonetised notes made in these companies’ bank accounts.
However, was it necessary to submit the citizens of this country to so much trouble and subsequently disrupt the economy’s growth path substantially to unearth all this tax evasion? Absolutely not. By making it mandatory to link the Income Tax permanent account number (PAN) to the universal identity Aadhar number and the bank accounts as is being done now and tracking the data on large cash deposits and tracking the shell companies diligently all this unaccounted economic activity could have been traced earlier. The black money that was demonetised was not held in cash in isolation. It continually went into the banking system and came out again to fuel economic activity. Thus, if a stringent system of heavy cash transaction tracking in banks, as is in place now, had been there earlier, then the flow of black money could have been traced with the use of advanced digital data mining. In fact there was a rule that any deposit greater than Rs 50,000 could only be made in a bank account after declaring the PAN of the depositor. If this data had been tracked diligently then all the duplicate PAN and shell company related deposits would have been unearthed. But no, Pied Piper Modi called the tune of demonetisation and all the rats in the government system followed him and drowned themselves in cash which they are now still counting!
Now that demonetisation itself has turned out to be a fiasco, the Government has turned its attention to such tracking methods and is giving demonetisation the credit for this new alertness to try and salvage something out of this costly mistake. However, this latest outrageous act of the RBI Governor of telling the Parliamentary Standing Committee on Finance that the notes are still being counted and so no official estimate of demonetisation is available has to be taken seriously. It is a telling comment on the state of Indian democracy that the opposition members in the committee which included the former Prime Minister Manmohan Singh, decided to crack jokes at the RBI’s expense instead of moving a motion for breach of privilege against the Governor for willfully refusing to give the data on demonetisation. Prime Minister Modi once joked about the former Prime Minister Manmohan Singh that he was deft at using a raincoat even while taking a shower and so came out unscathed from all the scams being perpetrated during his tenure. But now Modi has gone one step further and is using the RBI Governor Urjit Patel as a raincoat for his own Tughlaqian misdemeanours.


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Rahul Banerjee Written by:

Rahul Banerjee, an alumnus of Indian Institute of Technology, Kharagpur (B.Tech in Civil Engineering) and Centre for Environmental Planning and Techonology University, Ahmedabad (Ph.D in Environmental Planning and Management) is a social activist and development researcher. He works along with the Bhil Adivasis (indigenous people) to synthesise their traditional qualities with modern skills and contribute to equitable and sustainable development as architects of their own future. Through the organisations Khedut Mazdoor Chetna Sangath, a trade union and Dhas Gramin Vikas Kendra (, a public trust. He blogs at

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