When Prime Minister Narendra Modi spoke to the nation on 8 November to make shock announcement on demonetisation, the reason stated by him behind banning old Rs 500 and Rs 1,000 notes was to curb black money in India.
But, statement given by one of Modi’s ministers in Rajya Sabha on Thursday suggests that the prime minister is in for a rude shock on the much-publicised black money claims.
On Tuesday, as reported by IANS news agency, the minister of state for finance, Arjun Ram Meghwal, told Rajya Sabha that there were 17,165 million pieces of Rs 500 notes and 6,858 million pieces of Rs 1,000 notes in circulation on 8 November, 2016.
The total amount of high denomination currency circulating in the system on the day Modi made the announcement was, thus, Rs 15.44 lakh crore (Rs 8.58 lakh crore in Rs 500 notes and Rs 6.86 lakh crore in Rs 1,000).
However, on 28 November, the Reserve Bank of India announced that Rs 8.45 lakh crore (Rs 8,44,962 crore) in the banned high denomination notes had already been deposited in the banks between November 10 and November 27. That’s in just 18 days given that the banks were closed on 9 November and customers up and down the country had been queuing up in millions for days to deposit their old notes.
The window to deposit the demonetised currency notes was kept at 50 days.
In addition, all commercial banks in India are expected to maintain a portion of their deposits with the RBI known as cash reserve ratio (CRR). The RBI uses this to manage liquidity in the system.
According to the weekly bulletin of the central bank, on 8 November, the total amount of actual cash with the RBI as CRR was Rs 4.06 lakh crore (Rs 4,06,900 crore).
Additionally, banks retain money with themselves to manage day-to-day affair and to provide money on demand by customers. According to the RBI, the average cash-to-deposit ratio of banks in India is 4.69. If four percentage points from this goes as CRR to RBI, amounting to Rs 4.06 lakh crore (on Nov 8, say), the cash with banks would average around Rs 70,000 crore. This would include all denominations, of course.
So, if we take the money deposited in 20 days and add the CRR as on 8 November to it, this will take the total money in banks to Rs 12.50 lakh crore. Adding even a tiny portion of the cash-in-hand on 8 November, say Rs 50,000 crore, the total amount of money which is not with public in old notes is expected to reach Rs 13 lakh crore.
Given the pace with which old notes have been deposited in first 20 days, it’s expected that Rs 2 lakh crore more will be deposited in banks in the remaining 30 days. If this happens, this will be a huge setback to the prime minister’s calculation on black money.
The money, deemed as black money by the prime minister, may have come back to banks to its legitimate owners.
If this happens, many questions will be raised on Modi’s decision that resulted in over 80 deaths and misery caused to millions for days.
(With IANS inputs)