Demonetisation of high value currency- 2016: India

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Demonetisation of high value currency- 2016: India

Demonetisation of high value currency- 1946, 1978: India

2016: The demonetisation of Rs. 500 and Rs 1000 notes

Some key features of the new Rs 2000 and Rs 500 notes; Graphic courtesy: The Hindu, November 9, 2016

Black Out? Rs 500, 1000 Notes No Longer Valid, Nov 09 2016 : The Times of India

Demonetisation 2016: The front page of The Times of India, 9 Nov 2016
This snapshot of an inside page of The Times of India, 9 Nov 2016, shows that apart from cleaning up the system, Demonetisation 2016 would
i) thwart Pakistan’s attempts to subvert the Indian rupee (by printing counterfeit Indian currency of high denominations like Rs. 500 and Rs.1,000), and
ii)render useless the illegal cash that political parties had collected and stowed away.
Demonetisation 2016 triggered a much better class of joke than in 1978. At least Indian humour had moved up the value chain (they had been ‘up-valued’) in those 38 years.
The Times of India
More Demonetisation 2016, jokes
The Times of India
How many and how frequently the features of demonetisation scheme have been changed since its announcement on November 8, 2016; The Times of India

The anticipation built up after PM Narendra Modi met the service chiefs to review the India-Pakistan security situation and news filtered out that he would address the nation. But it was a surgical strike of a different kind, with Modi delivering a stunning surprise by scrapping Rs 1,000 and Rs 500 notes and calling for a “decisive war“ against corruption, black money and terrorism.

“There is a need for a decisive war against the menace of corruption, black money and terrorism...festering wounds which make the country and society hollow from within,“ the PM said in a TV address, his first, to the nation. The decision comes in the backdrop of a fierce political fight over black money with opposition parties claiming Modi has failed to deliver on his pledge to combat black money .

“From the midnight of November 8, Rs 500 and Rs 1,000 will not be legal tender...these will be just worthless pieces of paper,“ Modi said in his 40-minute speech. He said this was being done to combat graft and terror funding. The two high-value notes account for nearly one-fourth of all the notes in circulation. In value terms, however, their share was over 86% as of the end of March.

The PM also said new notes of Rs 2,000 and Rs 500 will be introduced but those being currently held will have to be exchanged at banks. But this is subject to limits and rules out the possibility of large exchanges of illegal stash as these will need to be explained and accounted for. Pitching the decision as a much needed antidote to stamp out the menace of corruption and terror funding, the PM said “Black money and corruption are the biggest obstacles in eradicating poverty...Have you ever thought how these terrorists get their money? Enemies from across the border have run their operations using fake currency notes.“

Describing illegal finan cial activities as the “biggest blot“, Modi said that despite several steps taken by his government over the last twoand-a-half years, India's global ranking on corruption had moved only to 76th position from 100th earlier.

According to the finance ministry , the total number of bank notes in circulation rose by 40% between 2011 and 2016, while the increase in number of notes of Rs 500 denomination was 76% and for Rs 1,000 denomination was 109%.

The World Bank in July 2010 estimated the size of In dia's shadow economy at 20.7% of GDP in 1999, rising to 23.2% in 2007. “A parallel shadow economy corrodes and eats into the vitals of the country's economy ,“ a finance ministry statement said. BLACK OUT? P 2, 13, 14, 15, 25, 29 & 30 It (a parallel shadow econo my) generates inflation, which adversely affects the poor and the middle classes more than others. It deprives government of its legitimate revenues which could have been otherwise used for welfare and development activities,“ a finance ministry statement said.

The move could have political ramifications in the forthcoming state elections as it impacts the capacity of parties to spend unaccounted cash for campaigning and various political payments. ATM withdrawals will be restricted to Rs 2,000 per day and withdrawals from bank accounts will be limited to Rs 10,000 a day and Rs 20,000 a week. Banks will remain closed on Wednesday and ATMs will also not function for the next two days, Modi said.

Apart from depositing money in bank accounts, Rs 500 and Rs 1,000 notes can also be changed for lower denomination currency notes at designated banks and post offices on production of valid government identity cards like PAN, Aadhaar and election card from November 10 to November 24 with a daily limit of Rs 4,000.

The demonetised currency notes will remain valid for transactions like booking of air tickets, railway and government bus journeys and hospitals till midnight of November 11 and 12. The RBI and the finance ministry have set up helplines to answer questions.

The background

The Hindu, November 9, 2016

Number of Rs 500 and Rs 1000 notes in circulation, FY14, FY15, FY 16 and FY 17 upto August 22, 2016; Graphic courtesy: The Hindu, November 9, 2016

RBI board had approved production of Rs. 2,000 denomination notes long ago, say officials

The government’s move to scrap nearly 23.2 billion high-value currency notes of Rs. 500 and Rs. 1,000, was in the pipeline for several months but was kept tightly under wraps, with just a handful of officials in the know.

The Reserve Bank of India’s central board had approved the production of the Rs. 2,000 notes several months ago and even began production of the new Rs. 500 and Rs. 2,000 notes, which are to be issued from November 10 a few months ago.

System ready

“The timing [of the announcement by the Prime Minister] was appropriately chosen as we should be ready with adequate number of notes to replace the existing ones. We had ramped up production in the past few months of the new notes, and hence, it was decided to do it now as we can provide more of them in the weeks and days to come,” said RBI governor Urjit Patel at a briefing.

Security concerns

The case for introducing new notes followed prolonged deliberations within the top echelons of government, based on inputs from security agencies and the central bank.

“There’s been no breach of security features of our notes. But for ordinary citizens, it is often difficult to tell a genuine note from a fake. There’s now a confluence of thought between the government and the Reserve Bank of India. Multiple objectives can be met so this led us to withdraw the legal tender character of Rs. 500 and Rs. 1,000 notes,” Mr Patel pointed out.

Mr. Das said the bold and decisive step to fight black money and the use of fake currency notes to finance terrorism was backed by analysis of India’s currency trends.

‘Disproportionate rise’

“Statistics show that high denomination currency in circulation has risen sharply between 2011 and 2015. When all currency notes grew 40 per cent, Rs. 500 notes in circulation rose by 76 per cent and Rs. 1000 notes went up by 109 per cent. But during this period, the economy expanded by 30 per cent so the circulation of such notes had gone up disproportionately,” he said.

“The long shadow of the ghost economy has to go for the real economy to grow. This will add to our economy’s strength,” Mr. Das stressed.

The origin of the idea

Abhik Deb, Demonetisation anniversary: The man who seeded note ban idea in PM Modi's head, Nov 7, 2017: The Times of India


Pune-based think-tank Arthakranti's founder-member Anil Bokil says that to realise all benefits of note ban, we need a ‘Taxless, Less Cash Economy’

Anil Bokil, the founder-member of Pune-based think tank ArthaKranti Pratishthan, is the man credited with germinating the idea of demonetisation in PM Modi's head back in July 2013 when he was the Gujarat chief minister. On the eve of the first anniversary of the surprise move to outlaw high denomination currency notes from the system, Bokil opens up to on a range of issues ranging from why 'demonetisation' is not the correct term, to his views on GST and how he would have carried out demonetisation differently.

Q1. There are reports that you have been pitching for demonetisation for more than 15 years. Did you suggest this idea to previous governments as well? What did you find in Narendra Modi that made you think that he is the person who can implement a step like this?

We have been presenting and demanding implementation of the ArthaKranti Proposal for more than 17 years now. We have presented it to all the major political parties. For us, implementation of the proposal has been the only goal. To every leadership, we presented it with this same aim - that - the proposal would be taken up for implementation. So, we presented the proposal to PM Modi also with the same aim. This was in July 2013 when he was Gujarat CM.

Speaking about the word 'demonetisation', there are two components of money - narrow money and broad money. Of these, narrow money also called transaction money consists of two components - currency money and bank/credit money. Since the so called 'demonetisation' exercise pertained only to the currency money, the word 'demonetisation' is inappropriate. Instead, the word 'note ban' correctly describes the exercise.

In our opinion, apart from Modiji's determination, the clear mandate to this government has a vital role in taking of a radical decision like demonetisation.

Having said that, withdrawal of High Denomination Currency Notes (HDCN) is only one of the five points of the ArthaKranti Proposal.

The Five Point ArthaKranti Proposal

Withdrawal of existing taxation system completely (except Customs/Import Duties)

  • All central, state and local government taxes - direct as well as indirect

Every transaction routed through a bank will attract a certain deduction in appropriate percentage (say 2 per cent) as a Bank Transaction Tax (BTT) - A single point tax deducted at source

  • This deduction is to be effected on receiving/credit account only
  • This deducted amount will be credited to different government levels like Central, State and Local (as say, 0.7 per cent, 0.6 per cent and 0.35 per cent respectively)
  • Transacting bank will also have a share (say 0.35 per cent) in the deducted amount as the bank has a key role to perform

Cash transactions will not attract any tax

Withdrawal of high denomination currency (say above Rs. 50)

Government should make legal provisions to restrict cash transactions up to a certain limit (say Rs 2,000). This means, cash transactions above this limit will not enjoy any legal protection.

Q2. There is an opinion that the coming back of 99.5 per cent of the demonetised notes to the banking system accounts for the failure of the move. Do you agree?

What else could happen? The demonetised notes could either come back to the banking system or become invalid after the deadline. As such, what happened is not a great surprise. The less discussed but important things are: In what volume the fake currency notes either came to light or became invalid and why was the withdrawal of HDCNs so critically important.

With nearly 30 per cent of our population below poverty line, High Denomination (Rs 500 and Rs 1,000) Currency Notes (HDCNs) accounted for about 85 per cent of total currency money by value. This made cash transactions very easy, thus boosting corruption, black money generation, parallel economy and all sorts of anti-social, anti-national activities. The HDCNs were also a rational reason for large proportion of devastating fake currency notes in circulation. The adulterated and huge proportion of cash in HDCNs, meant banks were always short of primary deposits, leading to hard and costly capital supply to the national economy. This affected one and all from farmers to businessmen.

Due to all pervasive parallel economy, democratic governing systems simply failed to control and deliver. Thus, demonetisation was a much needed step which the government took. The cash gathered in HDCNs over the years came back to banks, that is, in the national formal traceable economy. Banks now have more primary deposits at their disposal and can be converted into derivative deposits for lending purpose. Apart from this, banking/card/mobile transactions are on the rise. These are positive signs for the economy and the country as a whole.

Yet, it is far from being over. Given our per capita income and our poverty line numbers, even 500 rupee notes are required to be withdrawn. We perceive 'note ban' is just a start of a structural change. It is an ongoing process. One needs to wait for some more time to assess the complete outcome of the note ban.

Q3. Do you subscribe to the government's version that demonetisation has led to widening of tax base and has brought hoarded cash into the formal economy?

Since the hoarded cash is brought back into the formal economy, widening of tax base a natural outcome. There are many more noteworthy things. Per RBI data published on 15 September 2017: Re-distribution of currency: 2,000 rupee notes account for nearly 50 per cent of total currency money by value; 500 rupee notes account for nearly 22 per cent of total currency money as against 47 per cent a year ago

500 and 1,000 rupee notes together made it nearly 85 per cent of total currency money by value a year ago while now, 500 and 2,000 rupee notes together make nearly 72 per cent of total currency money by value

Total volume of currency stands at nearly Rs 13.3 lakh crore as on 31 March 2017 compared to nearly 16.6 Lakh Crore Rupees as on 31 March 2016, that is, nearly Rs 3 lakh crore less New 200 rupee notes are being printed

Bank money/demand deposits have increased to nearly Rs 14 lakh crore leading to increased bank money to currency money ratio from 0.6 to nearly 1

Q4. Given the fact that litigation processes in India take time to materialise, how early do you feel that hoarders of black money will get prosecuted and the 'long term benefits' of demonetisation will come to fruition?

Of the two pillars, 'law' and 'order', ArthaKranti believes in and works on the 'order' part. It is under 'law' that the litigation and punishment fall. Our thinktank works only on the 'systemic' correction. We do not believe in and work on the punishment models. As such, we always put forth the ills of cash and how HDCNs promoted it. And therefore the dire need to withdraw the HDCNs.

As regards realising the long term benefits of demonetization, it will take a while. But, even 500 and 200 rupee notes are required to be withdrawn along with 2,000 rupee notes in a phased, calculated manner. This will mean more of banking and less of cash; easier and cheaper credit/capital. At the same time, taxation needs to be much simplified. To realise all the benefits, we propose a 'Taxless, Less Cash Economy'!

Q5. What about the claims that there are other ways than hoarding cash, like investing in gold and real estate, to bypass demonetisation?

In our view, it was a must to check the hyper volatility and non traceability of money which was in the form of cash, as it was the prime factor promoting the all pervasive corruption. Also one of the main objectives of note ban was to bring back hoarded cash into the formal economy and make it a less of cash economy to also address the challenges posed by fake currency to the economy as well as security.

Q6. As you mentioned, one of Arthakranti's proposals is withdrawal of the existing taxation system. Is the current structure of GST in sync with this proposal?

In our view, GST may be better than earlier indirect taxation systems. However, Bank Transaction Tax (BTT) is the best form of taxation as it is auto-compliant, and without any discrimination and political influence. We demand that the complete existing taxation system is replaced by a single, effective Tax- the BTT. This is a win-win-win solution for the government, the taxpayer and the banks. The government gets revenue as much as needed, the taxpayer gets credit in return thanks to entry in banking and the banks get a share in each transaction thus freeing them of so far costly primary deposits which also meant costly lending.

What we have proposed is an exchange, it is not a compliance. For an exchange, there is a natural gravity unlike natural resistance to compliance of tax procedures. Everything invested in compliance is a pure cost-addition and this is on top of taxes paid. We are for simplifying the taxation system which works for everyone.

Q7. The bit of chaos that ensued post the surprise do you feel about that. Is there any way that could have been avoided?

The nature of such radical decision was certainly going to be a cause for some inconvenience and trouble for the society in general. It did lead to difficulties for the common man, but, it is a matter of great appreciation that people went through all the difficulties with commendable patience considering that the step being taken is required for the common good. That is why we are ok with the courageous decision taken.

Q8. Lastly, would you have implemented demonetisation in a different way? If yes, then how?

Our suggestion to the government was to withdraw HCDNs in phased manner and simultaneously withdrawing taxes along with the introduction of Bank Transaction Tax.

ArthaKranti Proposal Transition Plan is outlined below:

As a part of transition, a clean Amnesty scheme to be announced in which all demonetised currency money to be deposited in individuals' accounts

These deposits beyond a certain limit, to be converted in government Security Bonds of designed maturity periods

These deposits will attract a one-time tax at progressive rate

Phase 1: First Six Months:

Withdrawal of Central government Taxes like Personal Income Tax, Central Excise, Service Tax etc.

Withdrawal of 1000 rupee notes may be with introduction of 200 rupee notes 500 rupee notes to be supplied in calculated additional numbers

In lieu of the withdrawn taxes, a Fractional Bank Transaction Tax, say 0.55 per cent to come into effect. (Breakup: 0.5 per cent to Central government account and 0.05 per cent to the Banking System for setting up required Tax Collection Mechanism).

Phase 2: Next Six Months:

Monitoring revenue generated through Bank Transaction Tax

Negotiating with / Counseling State governments to withdraw All State and Local government Taxes assuring nearly 25 per cent rise in their current tax revenues via their share in the Bank

Transaction Tax, based on actual Bank Transaction Tax figures

Fixing the Bank Transaction Tax Percentage to generate required Revenues for Central, State and Local governments in lieu of withdrawn taxes

Withdrawal of 500 rupee notes

100 rupee notes and if required 200 rupee notes to be supplied in calculated additional numbers

Phase 3: Next 6 Months:

Complete transition is put in place and monitored meticulously

Withdrawal of 200 and 100 rupee notes

50 rupee and lower value notes to be supplied in calculated additional numbers

2016: Preparations began in Jan, decision on May 27

RBI, govt were in touch over note ban since Jan 2016, Jan 19, 2017: The Times of India

Demonetisation Decision Taken Around May 27

The Reserve Bank of India and the government were in regular touch over the demonetisation of Rs 500 and Rs 1,000 notes and printing of a new series of no tes since January 2016, the central bank and senior officials told a parliamentary committee.

In his comments before the standing committee on finance, RBI governor Urjit Patel said consultations were held but no minutes were maintained to ensure that secrecy was not compromised. The actual decision was taken around May 27, 2016.

Finance ministry officials and Patel said discussions on demonetisation were held, countering suggestions that the RBI recommended demonetisation after being prodded by the government just ahead of the November 8 announcement by the PM. RBI governor Urjit Patel also informed the parlia mentary committee that of the Rs 15.44 lakh crore that was demonetised, Rs 9.2 lakh crore had been replaced by way of new currency notes.

BJP member Nishikant Dubey is understood to have suggested that the RBI could produce travel details of its officials and other records to confirm that the discussions with the government did indeed take place. Patel said he was not in a position to respond to questions whether deposits below a threshold would not be investigated. He was asked about the central bank's autonomy as well in the context of the demonetisation decision.

Patel's comments on interactions with the government elaborated on the background note that the central bank had provided the committee. “It occurred to the government and the RBI that the introduction of new series of notes could provide a very rare and profound opportunity to tackle all three problems of counterfeiting, terrorist financing and black money by demonetising bank notes of Rs 500 and Rs 1,000 or by withdrawing legal tender status of such notes,“ the bank said. The large number of questions posed by members, said sources, made it difficult for officials and the governor to respond in length. Some members felt unhappy that Patel could not provide clear-cut answers on how much scrapped currency was deposited with banks by the December 30 deadline. Patel said he could not offer clarity as “physical counting“ of the currency was still in progress. Similarly, on the issue of when normal banking would be re stored, Patel said he hoped this would be soon and that ATMs were nearly back to their previous status.

Congress's Jyotiraditya Scindia, BSP's Satish Misra and TMC's Saugata Roy asked several questions.

Six months’ preparation

RBI got 6 months to prepare for this, Nov 09 2016 : The Times of India

Around six months ago [around May 2016], the government asked the RBI to prepare for its latest assault on black money , and told the currency manager to print more Rs 50 and Rs 100 notes, with PM Modi having decided to phase out the current lot of Rs 500 and Rs 1,000 notes earlier this year.

After all the task was hu mongous: replacing 23 billion notes.Besides, the information had to be kept confidential at all costs.

In any case, apart from the PM, only finance minister Arun Jaitley knew, and two senior officers each in the finance ministry and the RBI were in the loop.

The six months were used not just to print enough Rs 50 and Rs 100 currency notes, but also to plan the operations meticulously . This meant that, on Tuesday 8 Nov 2016, the Reserve Bank of India initiated the first “public“ move when its board met around 6pm and recommended the withdrawal of Rs 500 and Rs 1,000 notes. Soon, the government, which was ready with the notification, moved the Cabinet, which met at 6.30pm on Tuesday . The decision was taken and the PM went on air to announce the first demonetisation in 38 years.

The government's calculation was simple. It sees major gains accruing to the economy , beginning with an immediate halt to black money transac tions -at least in the near run. This is ex pected to force peo ple to use only legal channels, which will result in higher tax es in the govern ment's kitty .

While those showing “agricultu ral income“ can still use a possible loop transact in cash, the hole to transact in cash, the window is seen to be limited and the government expects bulk of the funds to flow into the banking system. This itself is going to provide more boost for lending, which has remained subdued, a senior government official said. “We have hastened the printing of these notes,“ RBI governor Urjit Patel said.

Designs approved on May 19, 2016

New note designs got RBI nod in May, 2016: Jan 25, 2017: The Times of India

The design of new banknotes of Rs 500 and Rs 2,000 denominations was approved at the May 19, 2016 meeting of the Central Board of RBI, an RTI query has revealed.

In his application, city-based activist Jeetendra Ghadge had sought the exact date of the approval of the design of new bills. “The new design of the bank notes was approved by the central board of RBI in its meeting held on May 19, 2016,“ the central public information officer of RBI stated in the response.

As per the Reserve Bank of India Act, 1934, general superintendence and direction of the Bank's affairs are taken care of by the central board of directors, a body headed by the governor of the RBI. Raghuram Rajan was governor of the apex bank during September 2013-September 2016.

RBI cited section 8(1)(a) of RTI Act to refuse information to Ghadge, who had sought to know exact date of the first meeting held at the apex bank with the agenda to print new currency notes of Rs 500 and Rs 2,000 denominations, and the exact date for the order allowing their printing. Ghadge, on Tuesday , said the RBI and its Governor need to come clean on the entire process of demonetisation “so that responsibility could be fixed and the common people's trust is maintained.“ Demonetisation of old Rs 500 and Rs 1,000 bills was announced by PM Narendra Modi on November 8 last year.

Rs 2000 notes' value with the RBI on November 8, 2016: Rs 4.98 lakh

The Times of India, Dec 20 2016

RBI had just Rs 5L cr in new notes on Nov 8 

An RTI query has revealed that the Reserve Bank of India (RBI) only had around Rs 4.95 lakh crore in the new Rs 2,000 notes when the demonetisation decision was announced. An estimated Rs 15.44 lakh crore was in circulation in the old Rs 500 and Rs 1,000 notes on November 8. According to RTI activist Anil Galgali, the RBI's Rs 2,000 notes accounted for less than one-fourth of the value of its own stock of the old notes. On that day , the RBI had Rs 20.51lakh crore in the old Rs 500 and Rs 1,000 notes.

“As per the RTI reply by RBI PIO Suman Rai, it is clear that the government was well aware of the gamble it was taking on a decision that had the potential to wreak havoc on the lives of 125 crore Indians,“ Galgali said.

How currency ban was kept a secret

Ban on currency: How it was kept a secret TNN | Nov 10, 2016 The Times of India

  • The ministers who attended the Cabinet meeting on Tuesday had to stay back till PM's address to the nation was over
  • This was to ensure that there was no premature leak of the plan to scrap Rs 500 and Rs 1,000 notes
  • Members of the Reserve Bank of India board too left only after Modi's speech

NEW DELHI: The ministers who attended the Cabinet meeting on Tuesday evening had to stay back till PM Narendra Modi's televised address to the nation was over, in order to ensure that there was no premature leak, even by a few minutes, of the plan to scrap Rs 500 and Rs 1,000 notes.

The demonetisation plan+ , the best kept secret in the power corridors of the national capital, was a tightly policed affair with only a handful of top officials privy to the move. Apart from ministers at the Cabinet meeting who had to remain in quarantine for a while, members of the Reserve Bank of India (RBI) board too left only after Modi's speech.

Sources said the official agenda for the Cabinet meeting on Tuesday was a deceptive string of MoUs between India and Japan, and even ministers were not aware about the proposal to ban high value currency notes.

"We just got some indication 10 minutes before the meeting started. It was a bold step by government. All ministers remained in the meeting hall from 6.45pm to 9pm until the PM's address to the nation ended," a minister said.

The Cabinet meeting ended around 7.30pm and the PM went to meet the President to inform him about the decision. "All ministers remained in the meeting hall.The PM held another meeting with three senior ministers later, which went on till late night," a source said.

It's worth mentioning that only a few weeks ago, the cabinet secretariat had issued a circular, to personal staff of all ministers, advising ministers not to carry mobile phones to the Cabinet meeting+ . "So, there was no scope of the information going out," said a source.

The government had also planned the timing of the Cabinet meeting. It was moved to the late evening slot and the RBI board also met around the same time. Sources said this was done to ensure that the news did not leak out.

Bankers Got Just A Few Hours To Mount Operation

Partha Sinha & Mayur Shetty, Bankers Got Just A Few Hours To Mount Op, Nov 19 2016 : The Times of India

10 Days On, They Reveal How Secret It All Was

Prime Minister Narendra Modi maintained such a deep level of secrecy in executing the decision to demonetise two high-value denominiations, that even the top bankers of the country had no idea about the move till he went on air at 8pm on November 8 to announce the decision to the world.

In the first week of November, RBI officials informed the chairpersons and MDs of all the top banks in India about a meeting at the central bank's headquarters in south Mumbai scheduled for 7pm on November 8. Uncharacteristically , the RBI didn't specify any particular agenda for the meeting, two bankers said. Usually , the central bank gives some notice to bankers when they are called for a meeting since it wants them to come prepared. On the day of the meeting, convened on the 15th floor of the RBI's Mint Street headquarters, all the top bankers of India, each with more than three decades of experience in the sector, were in attendance. The meeting started with RBI officials mainly discussing the situation pertaining to non-performing assets in the banking sector, a hot topic for the sector until that day.They discussed some other issues as well. Just before 8pm, RBI officials switched on the TVs in the room. They said that the PM would be on air soon, and they would continue the discussion after his speech, the bankers told TOI.

Until the time the PM had announced that India was scrapping Rs 500 and Rs 1,000 notes in less than four hours, none of the top bankers had any clue that the next few days would be their careers' most challenging.

“Basically it was as much of a surprise to us as to anybody else,“ said SBI chairperson Arundhati Bhattacharya. After the PM ended his speech, the bankers wanted to leave immediately and start work.

“The mood (with everyone present) was just to get out of the place and get things in place. We had to get out quickly to tell our people to switch off the ATMs by midnight; about the evacuation the next day, which was a huge exercise, then to take care of the recalibration; in the branches, what would be the instructions because there was to be exchanges, Rs 10,000 withdrawals etc,“ the SBI chief added.

However, the RBI deputy governors listed out what was expected of them and the bankers scrambled to meet their teams. The SBI chairperson, along with others, left the meeting between 9.30pm and 9.45pm.

By the time she reached her home at Malabar Hills around 10pm, she had called some of the top SBI officials to her bungalow. Soon enough, the meeting started and went on until the early hours. The next three days proved to be a tough challenge for the banking veterans, but they say that things have since started to fall in place.

RBI, Nov. 8, 2019: DeMo won’t curb black money

Mayur Shetty, In meet on DeMo, RBI had raised doubts about it curbing black money, March 11, 2019: The Times of India

Some directors on the RBI board were not fully convinced with a majority of reasons cited by the government for demonetisation, but supported the move — which had been under discussion with the Centre for six months — in “larger public interest”, as it provided an opportunity to promote financial inclusion and digital payments.

The government had said demonetisation would help curb black money and steep rise in Rs 500 and Rs 1,000 notes; check the circulation of fake currency; and promote epayments and financial inclusion. But according to minutes of the RBI board meet at 5.30pm on November 8, 2016, three hours before the PM announced demonetisation, “directors made the following significant observations”:

• “Most of the black money is held not in cash but in the form of real sector assets such as gold or real estate and this move would not have a material impact on the assets.”

Some RBI directors had countered the government’s argument on the growth in high denomination notes being much faster than the pace of economic expansion, arguing that “adjusted for inflation, the difference may not be so stark”.

• “While any incidence of counterfeiting is a concern, Rs 400 crore as a percentage of the total quantum of currency in circulation is not very significant.”

• On the plus side, it said, “Proposed step presents a big opportunity to take the process of financial inclusion and incentivising the use of electronic modes of payment forward...”

RBI directors warned of short-term hit to GDP

Some RBI directors had also cautioned against “short-term negative effect on the GDP” for 2016-17, although they termed it a “commendable measure”.

Despite these reservations the board approved demonetisation, which was proposed by an RBI deputy governor and supported by a note from the finance ministry, which provided a draft scheme for withdrawal of existing Rs 500 and Rs 1,000 bank notes. The board was reassured by the fact that all the issues raised by the directors were under discussion between the central government and the RBI for six months. The Centre had also assured RBI that it would take measures to contain the use of cash and promote financial inclusion and electronic modes of payment.

A few hours after the RBI board gave the go-ahead, PM Modi went on national TV to announce the withdrawal of the old Rs 500 and Rs 1,000 notes. The deliberations in the meeting on November 8 are a revelation as it shows that RBI did not see demonetisation as a solution to black money and counterfeit notes being used for terror financing and anti-national activity. The government had argued that during 2011-12 to 2015-16, the economy had expanded by 30%, while the pace of rise in Rs 500 notes was 76% and that of Rs 1000 notes was 109%. In counter, RBI said, “The growth rate of economy mentioned is the real rate, while growth in currency is nominal… Hence, the argument does not adequately support the recommendation.”

It now appears that the government decision to allow medical stores to accept demonetised currency was at the behest of RBI. Those part of the board meeting included then governor Urjit Patel and his two deputies R Gandhi and SS Mundra. The other directors were Anjuly Chib Duggal, (then financial services secretary), Shaktikanta Das (then economic affairs secretary and independent directors Nachiket Mor, Bharat N Doshi, and Sudhir Mankad with RBI chief general manager SK Maheswari in attendance.

Cost to RBI

The Hindu, November 9, 2016

New notes to cost RBI more than Rs. 12,000 crore

Sharad Raghavan

By removing the Rs. 1,000 note, the government is doing away with the cheapest note to print in relation to the face value of the note.

Replacing all the Rs. 500 and Rs. 1,000 denomination notes with other denominations, as ordered by the government, could cost the Reserve Bank of India at least Rs. 12,000 crore, based on the number of notes in circulation and the cost incurred in printing them.

Data from a Right to Information answer by the RBI in 2012 shows that it costs Rs. 2.50 to print each Rs. 500 denomination note, and Rs. 3.17 to print a Rs. 1,000 note.

That means that it cost the central bank Rs. 3,917 crore to print the 1,567 crore Rs. 500 notes in circulation, and Rs. 2,000 crore to print the 632 crore Rs. 1,000 notes in circulation currently.

Assuming that the new Rs. 500 notes cost the same to print, then that is an additional Rs. 3,917 crore spent in simply maintaining the same number of notes in circulation.

The new Rs. 2,000 notes are likely to cost about the same or a little more than the Rs. 1,000 notes, which means an additional cost of Rs. 2,000 crore to print them.

In total, removing the old notes and replacing them with the new Rs. 500 and Rs. 2,000 notes will cost the central bank a total of at least Rs. 12,000 crore. This figure is likely to go up since additional security measures, which the new notes are set to have, will only add to the cost of printing.

By removing the Rs. 1,000 note, the government is doing away with the cheapest note to print in relation to the face value of the note.

Highest cost

The Rs. 3.17 it costs to print a Rs. 1,000 note is the highest in absolute terms across denominations, but it is the lowest when compared to the face value of the note.

For example, a Rs. 10 note costs only Rs. 0.48 to print, but that works out to 9.6 per cent of the face value of the note. Printing a Rs. 10 note costs 10 per cent of what that note is worth. This, for a Rs. 1,000 note, is 0.3 per cent.

Nashik mint goes into printing overdrive

Tushar Pawar, In 2 days, Nashik mint gives RBI 74m pieces of currency, Nov 16 2016 : The Times of India

The Currency Note Press (CNP), Nashik, has dis patched 74 million pieces of currency notes of Rs 500, Rs 100 and Rs 20 denominations to Reserve Bank of India (RBI) in just two days, on Monday and Tuesday .

Of the 74 million notes, 13 million are of Rs 500 denomi nation, 31million of Rs 100, and the remaining 30 million are of Rs 20 denomination, sources from the CNP told TOI. The CNP had sent five million pie ces of new currency notes of Rs 500 to RBI on Friday too.

The CNP, which is one of the nine units of the Security Printing and Minting Corpo ration of India Ltd (SPMCIL), is printing cur rency notes of all denomina tions, except the new Rs 2,000 note. “We despatched 37 mil lion currency notes on Mon day and the same quantity on Tuesday ,“ an official said “We are taking efforts to print maximum number of notes of Rs 500, Rs 100 and Rs 20. On an average, 16 million notes are being printed daily .“

The government scrapped the currency notes of Rs 500 and Rs 1,000 with effect from Tuesday midnight. Although the Rs 2,000 currency notes have come into circulation, the new Rs 500 notes are expected in the market shortly . The RBI is printing Rs 2,000 and Rs 500 notes at its two printing units in Mysore in Karnataka and Salboni in West Bengal, while SPMCIL is printing Rs 500 notes at its presses in Nashik and Dewas in Madhya Pradesh.

Economists’ view

Nobel laureate Thaler lauded move; critiqued implementation

Demonetisation rollout was 'deeply flawed': Nobel laureate Richard Thaler, November 19, 2017: The Times of India


Nobel-winning economist Richard Thaler said demonetisation was a "good" concept but its implementation was "deeply flawed"

He critiqued that the move to introduce Rs 2,000 notes was "puzzling" and undercut the purpose of the note ban

Thaler had won the Nobel Prize in Economic Sciences in 2017

US economist and Nobel laureate Richard Thaler thinks that the Indian government's decision to demonetize high value currency notes was a "good" concept but its implementation was "deeply flawed."

Thaler further says that the move to introduce Rs 2,000 notes during the remonetisation exercise was "puzzling" and undercut the purpose of the note ban, considering that it aimed to crack down on the parallel economy and transform India into a less-cash society.

All this emerged after Swaraj Kumar, a student of the Chicago University professor, approached him for his views on demonetisation.

Kumar posted the email conversation with Thaler on his Twitter account. Here's what the economist had to say: "The concept was good as a move to a cashless society to impede corruption but the rollout was deeply flawed and the introduction of the Rs 2000 note makes the motivation for the entire exercise puzzling."

Kumar's tweet was later retweeted by Thaler's handle.

But when he got to know that the government planned to introduce Rs 2,000 notes, he registered his surprise and skepticism in the following two-word tweet.

Legal view

HC: Ban came with enough relaxations

HC: Ban on notes came with enough relaxations, Nov 29 2016 : The Times of India

The Delhi high court on Monday appeared to have agreed with the Centre that relaxation has been provided to citizens to help them deal with the shift to new currency as per the demonetisation policy .

“Relaxation has been given wherever it is necessary ,“ a bench of Chief Justice G Rohini and Justice Sangita Dhingra Sehgal said. The court was hearing a PIL seeking relaxation of the Rs 2.5 lakh withdrawal limit for marriages. The petition also sought a direction for allowing old notes of Rs 1,000 and Rs 500 for paying fines and court fees till December 31. HC is likely to deliver the verdict on Tuesday .

Appearing for the Centre, additional solicitor general Sanjay Jain and standing counsel Gaurang Kanth said fear of misuse has made government impose conditions. “For weddings, if there are no conditions, then anybody can get a marriage card printed and go to the bank,“ Jain said, urging the court to dismiss the plea.

Petitioner Birender Sangwan alleged that the guidelines that seeks detailed list of people to whom the cash is proposed to be paid for marriage and declaration from them that they do not have a bank account were “arbitrary“ and made it impossible for a family to withdraw cash at the time of need.

“Liberty must be given for marriages so one can pay as per the customs. How can somebody give such an undertaking? As per the guidelines, even the priest who performs marriages has to give an undertaking of not having an account. The parents of the bride and groom should be allowed to withdraw without such arbitrary conditions,“ Sangwan said.

Supreme Court’s judgement

Dhananjay Mahapatra, January 3, 2023: The Times of India

The judgement of the Supreme Court of India on the demonetisation of 2016
From: Dhananjay Mahapatra, January 3, 2023: The Times of India

New Delhi : A five-judge Constitution bench of the Supreme Court, by a 4-1 majority, validated the controversial November 8, 2016 decision of the Union government to demonetise currency notes of Rs 500 and Rs 1,000 denomination and rejected lock, stock and barrel the challenge by 58 petitionsto the demonetisation decision-making process, saying it was “flawless”.

The majority judgment, authored by Justice BR Gavai on behalf of himself and Justices SA Nazeer, AS Bopanna and V Ramasubramanian, said the hardships faced by citizens following demonetisation six years ago cannot be a ground to reverse the decision.

On creating a fresh window for return of demonetised currency, the majority verdict said it did not have the expertise to “frame such a scheme”.

Ploughing a lone furrow,Justice BV Nagarathna said though the objective of demonetisation was noble and aimed to achieve economic health and stability by targetingfake currencies, terror funding and black money, the process adopted by the Union government was illegal. She quashed both the 2016 ordinanceas well as Parliament-enacted Specified Bank Notes (Cessation of Liabilities) Act, 2017.

NEPAL and BHUTAN: the pain


Elizabeth Roche. Nepal, Bhutan take up demonetisation issue, impact on financial aid, Nov 24 2016, Live

Nepal Rashtra Bank and the Royal Monetary Authority of Bhutan are in touch with the RBI regarding facilitation of collection and deposit of old Rs500 and Rs1,000 notes Nepal and Bhutan, two major recipients of Indian developmental aid, have taken up with New Delhi the issue of demonetisation of high-value currency bills and the impact it could have on financial assistance to them.

As per the 2016-17 budget, India has earmarked Rs5,490 crore for Bhutan and Rs300 crore for Nepal.


Below are excerpts from Jeremy Luedi, Senior Analyst, Global Risk Insights, Under the Radar: Nepal in turmoil after India’s rupee demonetization, November 25, 2016. The full article and graphs can be accessed at this link.

Under the Radar: Nepal in turmoil after India’s rupee demonetization

Hundreds of thousand of Nepalese citizens work in India as migrant workers, with Nepal receiving $640 million in remittances from its citizens in India in 2016. Much of these remittances, which amount to 2.6% of GDP, are sent home using the now defunct banknotes.

Pandey, who attempted to deposit $440 worth of rupees, only to be refused, is now unable to repay a $275 loan used to rebuild the family home after the 2015 earthquake. He is in a situation shared by hundreds of thousands of others now unable to deposit their Indian earnings in Nepalese banks, as said banks no longer recognized the defunct bills. Alongside migrant workers, Nepalese students seeking admission to Indian institutions, those seeking medical treatment, pilgrims, and those visiting family in India are also affected. Moreover, thousands of veteran Gurkhas drawing pensions in Indian rupees have seen their payments undermined.

Unlike Indians, Nepalese citizens are not able to exchange or deposit their notes by the December 30th deadline set by New Delhi’s transition plan. The Federation of Nepalese Chambers of Commerce and Industry estimates that some ten billion rupees ($146 million) in defunct notes is held by the informal sector and private individuals – a major loss of savings in a country with a nominal per capita GDP of only $837.

To make matters worse Nepal has banned the use of the new replacement bills until India issues a FEMA notification, as per the Foreign Exchange Management Act. While this is standard procedure, the move only puts Nepal further at the mercy of New Delhi’s schedule, as well as exacerbates the troubling plight of ordinary Nepalese caught in the middle. This is not the first time consumers and investors have faced difficulties regarding the rupee in Nepal, as prior to 2015 India’s 500 and 1,000 rupee notes were banned, a ban only removed after a visit by PM Modi in the same year.

During Nepal’s previous ban India set up a task force to ease currency exchanges with Katmandu after which the now defunct 500 and 1,000 rupee bills were finally accepted.

Another concern for both Nepal and Bhutan is how banknote demonetization will impact foreign aid from India, as New Delhi allocated 54.9 billion rupees ($798 million) to Bhutan and 300 million rupees ($4.36 million) to Nepal in 2016.

Demonetization threatens unrest, tourism in Nepal

The losses incurred by ordinary Nepalese from India’s demonetization will have serious knock-on effects, especially in a country with severe existing food shortage problems and a lack of other basic services.

Any instability could seriously damage Nepal’s efforts at economic growth. The country’s tourism sector is particularly at risk as the industry is highly exposed and responsive to political risk. Tourism constitutes Nepal’s largest source of foreign exchange, and if this source diminishes, then it (coupled with stymied remittance rates) will contribute to a major reduction in desperately needed foreign reserves.

Laundering money

Methods used

Please see graphic

Methods used for laundering money after demonetisation of high value currency in November 2016; The Times of India, Dec 13, 2016

The Times of India

1. Fall back on friends:

The easiest and most pervasive is the use of personal network. Asking the person who can legitimately exchange.

2. NBFCS can play facilitator:

Here, a person tells a willing non-banking financial company (NBFC) that he is ready to hand over cash in exchange for an interest-free loan of an amount that is say, 20% lower than the cash being paid. The loan is transferred into the person's account, providing legitimate cash. The loan is interest-free for 3 years, within which time a paper trail would be created to show than it has been repaid. The 20% is the cut the NBFC takes for putting through this fraudulent transaction.

3. Forex route:

Governments, after all, can not demonetise other currencies. Hence, people are rushing to the grey market for dollars, euros and pounds. Once again, they are ready to pay a sizeable exchange premium. The dollar has been driven up to around Rs 120 in these deals, sources say.

4. Realty to the rescue:

The real estate sector is assumed to be badly hit by demonetisation. And, sources in the trade say the unsold inventory is being bought by those seeking quick conversion of cash at rates prevailing months ago. As is common in realty, these deals are often settled at 70-30 or 60-40 ratios of white and black payments. It is clear how this helps the buyer, but what does the builder get out of it? Where is his conversion charge? Partly, he gains from getting rid of unsold inventory. And partly from sticking to old rates at a time when prices have fallen.

5. Pumping out the cash:

Through transporters: According to an industry source, permission to use old notes at petrol pumps has been used to hilt for this operation. Figures being thrown run into tens of thousands of crores, but even if these are an exaggeration, this is certainly a major conduit for cash.

6. The gold route:

Those with large stashes of demonetised cash hand in old Rs 500 and Rs 1000 notes and get gold in exchange. Of course, gold in these transactions is priced much higher than the official rate of Rs 30,000 or so. And in some cases, it is close to Rs 50,000 per 10gm, sources say. The premium is the charge for legitimising the cash stash.

Some other indigenous tricks:

1. NGOs: Donations have spiked

2. Sales of medicines, as chemists were accepting old notes

3. AC-I ticket sales, up by 1000% with buyers planning to cancel them later

4. Advance salary with pay hike

5. Temple donations

6. Jan Dhan accounts: People "rented" JDY accounts to deposit black money to be withdrawn later.

Cash sent repeatedly from unscheduled airfield, on chartered aircraft to the NE

Pradeep Thakur & Prabin Kalita, Nagaland MP's son-in-law held, `missing' cash found, Nov 24 2016 : The Times of India

Income tax and intelligence officials in the national capital suspect that the Rs 3.5crore in scrapped currency notes seized from a chartered flight in Nagaland could be part of a big money laundering racket, with the masterminds exploiting tax exemptions for tribals in the northeast and non-existent security at smaller airports.

A probe by the I-T department revealed that some businessmen, including the Gurgaon-based owner of a printing and packaging firm, allegedly roped in Anato Zhimomi, who claimed the seized money after produc ing an I-T exemption certificate, and took advantage of the absence of security at a small airfield in Hisar to haul at least Rs 11 crore in outlawed denominations of 500 and 1,000 to Dimapur by a chartered plane.

The money thus ferried was deposited into the account of Anato, the son-in-law of three-time Nagaland CM Neiphiu Rio, the sole representative in the Lok Sabha from the state who backs the BJP-led NDA at the Centre.Anato's father Khekiho Zhimomi served as a member of the Rajya Sabha from the Naga People's Front party.

Anato, who has been arrested, was supposed to transfer the money back into the account of the business men through RTGS [Real-time gross settlement systems].

Sources in the I-T department said Anato had “confessed“ to have ferried cash thrice from Hisar to Dimapur by the same plane on November 12, 14 and 21. Anil Sood is the Gurgaon-based owner of a printing and packaging firm, in whose bank account Anato had been making transfers through RTGS after cash was deposited in his Dimapur account. The proprietor of the airline is also under the scanner, with the I-T department seeking to verify Anato's claim that the last cash shipment belonged to the former.

Besides highlighting the desperation of those with stashes of scrapped notes, the incident has rung alarm bells among authorities over the absence of security at the airfield belonging to Hisar Flying Club -something which the group capitalised on. Inquiries suggest that those involved in shipping cash faced no questions as they loaded their cargo onto the aircraft chartered from Air Car Airlines. “Today, this is a case of money laundering. Tomorrow, any terrorist can similarly fly from an unscheduled airfield to land at a scheduled commercial airport to wreak havoc,“ said an official source.

Large cash enters inactive Jan Dhan accounts

Yogesh Dubey & Aditya Dev, Dead since birth, Jan Dhan a|cs now flush with cash, Nov 12 2016 : The Times of India

A large amount of cash has suddenly started flowing into previously inactive Jan Dhan accounts in the aftermath of the demonetisation of Rs 500 and Rs 1,000 notes.

The Jan Dhan Yojana was launched in August 2014 with an aim to bring the poor into the fold of banking facilities, and empower them financially by encouraging savings, and easing loan delivery and direct cash transfer.

Accounts opened at the time but not used so far have overnight turned flush with funds. Many such accounts, which held only Re 1or Rs 2 till November 8, now have up to Rs 49,000, the upper limit for deposits that can be done without PAN cards.

A few bank officials told TOI on the condition of anonymity that many accountholders were possibly being exploited by middlemen or the rich to lend their accounts to park cash.

Ajay Agnihotri, manager of State Bank of India's Fatehabad Road branch in Agra, said, “There are around 15,000 Jan Dhan accounts at our branch, and 30% of the account-holders have deposited amounts of up to Rs 49,000 since Thursday (when banks reopened in the wake of the demonetisation announcement). We are quite sure that this percentage will go up in the coming days.“

Another bank official added, “In certain cases, we are quite sure that it is not their money . Gullible persons and those working on a contractual basis in factories are being used by their employers as well as middlemen. However, people should know that the government is tracking all the records and transactions.“

TOI was able to track a few account-holders used for this purpose. One of the victims, who had deposited Rs 49,000, said he was promised Rs 500 in return. He would have to return the rest of the money in some days.

“I was told that if I deposit this amount, my reputation in the bank will go up. The middleman also said he would help me financially in the future,“ he added.

Shell companies send money to multiple bank accounts

Taxmen unearth mega fund routing after demonetisation, Oct 07 2017: The Times of India

Shell Cos Used Web Of ACs For Illegal Cash Deals

In a major breakthrough, tax authorities have uncovered details of several shell companies routing massive sums of money through a web of bank accounts during the demonetisation period. Nearly Rs 4,600 crore has been detected so far, and this, officials believe, is only the tip of the iceberg. They have collected information on only 5,820 of over 2 lakh companies whose names were struck off by the ministry of corporate affairs last month, and their directors and bank accounts put under the scanner. The 5,820 companies had 13,140 accounts in nine banks.

Sources told TOI these companies had deposits worth Rs 4,574 crore on November 8 last year, the day demonetisation was announced, in the accounts investigated.Nearly 99% (Rs 4,552 crore) was withdrawn by the time their names were struck off.Initial information available with IDBI Bank showed 3,300 firms whose names were struck off had 3,634 accounts with this bank alone that saw deposits of Rs 3,792 crore and withdrawals of Rs 3,794 crore.

The discovery is expected to strengthen the government's argument that the tax department's post-demoneti sation operations will actually help unearth black money , and blunt criticism that the exercise was a failure. Tax authorities are of the view that the RBI and the Registrar of Companies need to conduct a detailed probe into these companies.

The tax department has identified at least nine firms that had over 100 accounts each. Gold Sukh Trade India, with 2,134, and Aswin Vanaspathi India, with 915, top the list, followed by Anujay Exim (313) and Radha Krishna Payal Bhandar (298).

According to data provided by the Bank of Baroda, some of the companies had negligible balance when demonetisation was announced but saw large deposits over the next few weeks. MAATara Ispat Pvt Ltd, for instance, had 45 accounts with a balance of Rs 6,781 on November 8 but deposited and withdrew over Rs 6 crore till its name was struck off.

Radha Krishna Payal Bhandar had Rs 1.9 crore across its bank accounts on the eve of demonetisation.But over the next few weeks, Rs 12.6 crore was deposited, and Rs 12.53 crore withdrawn.

At Canara Bank, Subhash Pipes deposited Rs 13.91 crore and withdrew the entire amount. Similarly , Technext Vyapaar deposited and withdrew Rs 9.9 crore. The bank told tax authorities there were 429 firms with zero balance on November 8 that subsequently saw deposits of over Rs 11crore and withdrawals of a similar amount, leaving a cumulative balance of Rs 42,000.

Post demonetisation, November 2016: 35,000 shell firms deposited/withdrew Rs 17,ooo cr

NOTE BAN A YEA Rs ON - 35,000 shell firms deposited, withdrew Rs 17k cr post-DeMon, Nov 6, 2017: The Times of India

The government's crackdown on “shell companies“ has shown that around 35,000 of the 2.24 lakh companies, whose names have been struck off, deposited over Rs 17,000 crore post-demonetisation, which was later withdrawn, raising suspicion of wrongdoing.

In one case, a company with a negative opening balance on November 8, 2016, when Prime Minister Narendra Modi announced that Rs 500 and Rs 1,000 notes were being junked, deposited and withdrew Rs 2,484 crore post-demonetisation. In a statement, the finance ministry said a company had as many as 2,134 accounts and data for such entities had been shared with enforcement authorities, including the Central Board of Direct Taxes, Financial Intelligence Unit (FIU), department of financial services and the Reserve Bank of India for further action. Companies have also been identified for inquiry inspectioninvestigation under the Companies Act, 2013 and necessary action is underway, the release said.

The government has so far de-registered over 2 lakh companies that were inactive for two years or more and did not file the statutory reports, while also disqualifying over 3 lakh directors. “Preliminary enquiry has shown that over 3,000 disqualified directors are directors in more than 20 companies each, which is beyond the limit prescribed under the law,“ the government said.

Separately , banks have been asked to freeze the accounts of these companies and share da ta with the government. So far, 56 banks have shared information involving 58,000 companies with more information expected to come in the coming months. Data released on Sunday was a continuation of the trend witnessed earlier.

The multi-pronged approach is being driven by a special task force (STF) set up by the PMO, which is co-chaired by revenue secretary Hasmukh Adhia and corporate affairs secretary I Srinivas.While several corrective measures to tighten regulations have been initiated, the government is also initiating criminal investigation under new provisions of the Companies Act.

“Under Section 447 of the Act, which defines fraud, stringent punishment, including imprisonment up to 10 years, is stipulated. Further, reference has been made to the ministry of finance to include it as a Scheduled Offence under the Prevention of Money Laundering Act,“ the government said.Action against professionals who assisted these companies is also being pursued.

Gold worth Rs 2,700cr bought in Hyderabad

The Times of India, Dec 18 2016

Gold worth Rs 2,700cr bought in Hyd with banned notes from Nov 8-30

SagarKumar Mutha

Investigations by the Enforcement Directorate (ED) have revealed that gold biscuits worth Rs 2,700 crore were bought with demonetised currency in November in Hyderabad alone. People who purchased the biscuits went underground thereafter. ED sources told TOI that going by details of air cargo, more than 8,000kg of gold was imported into Hyderabad between November 8 and 30.“That all this was sold can be ascertained from the fact that there was fresh import of 1,500kg of gold between December 1and 10. There is a sudden spurt in the bullion market and those with high stash of the banned currency are buying gold from bullion traders and jewellers in Hyderabad,“ the sources said.

Rs 9,000cr put in dist co-op banks in 5 days

The Times of India, Dec 18 2016

UNDER LENS - Rs 9k cr deposited in dist co-op banks in 5 days after cash ban

Freny Fernandes & Shrutika Sukhi

Entities Cater Primarily To Poor Farmers

Either the rural economy is extremely robust, or farming possibly the most lucrative of occupations. Deposits totalling over Rs 9,000 crore were made in select district central cooperative banks (DCCBs) across 17 states between November 10 and 14. The five-day window began a day after the government's demonetisation decision kicked in on November 9. Perennially saddled with accumulated losses and large non-performing assets, DCCBs suddenly mopped up over 147 crore of the demonetised Rs 500 and Rs 1,000 notes in the period.

Counter-current: Old notes at premium to shore up 'cash in hand'

Old notes selling at a premium in Kolkata market, Rohit Khanna | TNN | Dec 27, 2016

Old notes of Rs 500 and Rs 1000 will fetch you Rs 550 and Rs 1,100 here

Shell companies need to shore up 'cash in hand' in their balance sheets before the third quarter ends on December 31

These old notes can be deposited in banks only till December 30

After PM Modi announced demonetisation on November 8, the business community in Calcutta adopted every possible means to either exchange the notes or get some deposited in banks. With the third quarter coming to an end, they have little cash left to show as 'cash in hand'. Income tax officials have come across a number of companies which have shown a large amount 'cash in hand' in the balance sheet when the physical cash was much less.

If these companies have shown 'cash in hand' over a long period, then a large part of the amount is expected to be in the form of old Rs 500 or Rs 1,000 notes. But, as per RBI guidelines, these notes can be deposited in banks only till December 30 this year. This has led to the sudden surge in demand for the scrapped currency. "There is such a possibility but I can't say if anyone has utilised the scope to fudge the balance sheet," said Anirban Datta, chairman of Institute of Chartered Accountants of India (eastern region).

At a time when people across the country are queuing up outside banks to get rid of old Rs 500 and Rs 1000 notes, the scrapped currencies are selling at a premium in the serpentine bylanes of trading hub Burrabazar. Old notes of Rs 500 and Rs 1000 will fetch you Rs 550 and Rs 1,100 here.

On 26 Dec 2016 The Times of India spotted men sitting with wads of new currency notes in the shops dotting the trading hub. They were there a month ago too, but then they were handing out anything between Rs 800 and Rs 850 in exchange for a note of Rs 1000 in old denomination. The sudden reverse exchange may stump commoners but those in the know say it has been triggered by shell companies who need to shore up 'cash in hand' in their balance sheets that show huge paper transactions. The city's accountancy fraternity sees this as a bid to justify the paper transactions before the third quarter ends on December 31.

In the balance sheet, 'cash in hand' is the amount held by a company in the form of notes or coins. In layman's term, 'cash in hand' is the money that is kept to pay small amounts but is not deposited in the bank. However, it does not mean the money lies in physical form in a chest or a drawer.

The six most common methods used

See graphic.

How some people with black money converted it into white in 2016
The Times of India

Karnataka laundered other states’ money

BV Shivashankar, Dec 29 2016: The Times of India

Investigation into the seizures in Karnataka has revealed that the state could be a prominent part of well-oiled operations, with 70% of all cash seized belonging to currency chests from other states.

A source said the serial numbers on the notes indicate that most of the seized money -Karnataka recorded the highest number of seizures -came from currency chests in Chennai, Hyderabad, Vijayawada, Ahmedabad and Surat, among other cities. “Going by the serial numbers of notes seized, only a few were allocated to banks in Karnataka,“ he added.

Of over Rs 3,500 crore seized as of December 25 across the country , Rs 100 crore was in Rs 2,000 notes.The income tax department has referred over 55 cases to the Enforcement Directorate, out which 26 are from Karnataka. The currency notes seized indicated the rackets spread to TN, Andhra, Gujarat and Goa. For instance, of the Rs 29 lakh seized from the Bengaluru home of P Vivek, the son of sacked TN chief secretary Ram Mohan Rao, Rs 23 lakh was in new notes issued to a currency chest in Chennai. Tirumala Tirupati Devasthanams trust member J Shekhar Reddy and D K Badrinath, brother of former Chittoor MP Adikeshavulu Naidu, were allegedly linked to a money laundering racket in Bengaluru. Most of the notes they dealt with were from Andhra and TN.

Even in the case of Bheema Nayak, who allegedly helped mining baron G Janardhana Reddy with currency conversion, Rs 100 crore is said to have been routed to Bengaluru from Andhra.

Not linked to this was a racket operated from Goa.Many casino owners were involved, and the Rs 5.7 crore seized from the residence of JD(S) politician K C Veerendra, also a casino owner, is linked to it.

Corrupt bank employees were acted against

156 PSB officials suspended for note ban irregularities Feb 04 2017 : The Times of India

Many bank employees were found involved in `irregular exchange of transaction' of specified bank note (SBN) during the phase of demonetisation.

As many as 156 senior officials of various state-owned banks were suspended and 41 transferred after they were found involved in irregularities related to demonetisation, Parliament was informed in Feb 2017.

Banks also reported having filed 26 cases with police and the Central Bureau of Investigation (CBI) wherever criminal cases were involved.

In respect of private banks the Reserve Bank of India (RBI) informed that 11 employees have been placed under suspension The RBI has further informed that banks have initiated internal investigation and complaints have been filed with police/ CBI.“

Misuse Of Windows Offered By Govt

17% of cash seized in raids during demonetisation were in new notes|Jul 09 2017 : The Times of India (Delhi)

17% of cash seized in raids during demonetisation were in new notes

TIMES NEWS NETWORK   Indicates Misuse Of Windows Offered By Govt As much as Rs 110 crore of the Rs 610 crore of unaccounted money seized in raids during demonetisation was in new Rs 2,000 and Rs 500 notes, indicating misuse of windows offered by the government to change old currency. The new currency seized by police and income tax officials was partly generated through rou tes such as petrol pumps, railway and airline ticketing and toll plazas where denotified notes were accepted and also the handiwork of a section of crooked bank officials who exchanged notes illegally . The figures are part of the arguments made by the Centre in the Supreme Court in explaining its reluctance in offering a fresh window for exchange of old notes. The exemptions offered, it has said, have been abused and so might any new windows. The SC has suggested that a genuine case where a person for circumstances out of his control was unable to change old currency should be given an opportunity to argue his case. The view in the Centre is even a deserving case can be exploited to change illegal money.

The Centre has argued that the experience of demonetisation did not support the case for a fresh window and also said that ordinance issued to shut down all ex change or deposit of notes after December, 2016 was legally valid. It has said the language of the earlier notification did not mean the government was bound to provide a window beyond the end of the year.


The seizure of as much as Rs 110 crore of new notes in demonetisation between November 9, 2016 to December 30, 2016 was a good indicator of how the exchange mechanisms were manipulated. The exchange or use of notes was different from the facility to deposit old notes in bank accounts. The 1,100 raids during demonetisation yielded Rs 5,400 crore of undisclosed income and 400 cases are being investigated by the CBI and Enforcement Directorate.

Trash cash sent to temples

Siddhivinayak hundi swells

Siddhivinayak hundi swells with donation in trash cash, Nov 18 2016 : The Times of India

Temple donation boxes across the country are over flowing with cash, a bulk of it in old 500 and 1,000 rupee notes, prompting their managements to speed up counting of currency and ensure timely deposits in bank accounts.

Mumbai's Siddhivinayak has received twice the usual amount in anonymous donations in the week since the demonetisation of the old Rs500 and Rs1,000 currency notes. Its hundi was opened on Wednesday to reveal cash donations of Rs 60 lakh, much of it in highdenomination notes.The average weekly tally is Rs 35-40 lakh.

The Maharashtra government has requested Siddhivinayak and other prominent shrines in the state to deposit cash offerings in banks on a daily rather than weekly basis so that the flow of new currency can be augmented.

Narendra Rane, chairman of Siddhivinayak temple trust, said, “We have received 90 bank notes of Rs2,000 denomination also. It shows devotees who have spent long hours in queues at banks and ATMs want to offer the first note to Lord Ganesha. As for the outgoing currency , there are 1,060 notes of Rs 1,000 which total Rs 10.60 lakh. There is a flood of of Rs500 notes, which comes to approximately Rs 17 lakh. The rest is small currency .“

Tirumala Tirupati Devastanams

Hundi collection at the Tirumala Tirupati Devastanams (TTD), considered the richest temple trust in India, stands at a little over Rs 20 crore since the announcement of demonetisation. “For the last few days we are receiving hundi income in the range of Rs 2 crore to Rs 2. 5 crore daily ,“ said Chandrasekhar Pillai, deputy executive officer, TTD.

Mathura and Vrindavan

Anuja Jaiswal, UP DONATIONS - Govt eyes shrines for change, Nov 18 2016 : The Times of India

Desperate for cash in small denominations, temples in Mathura and Vrindavan, which get close to Rs 6 crore each month in donations, have been asked by the district administration to take each day's earnings to banks and deposit them.

There are over 7,000 temples in the two districts and all of them will be expected to open their donation boxes at the end of the day for various banks to collect them.

All temples in India have been instructed to deposit their donations in their respective bank accounts.

The move is also being viewed as a step by the administration to check people from doing away with money in the form of now-banned Rs 500 and Rs 1,000 notes. Officials TOI spoke to on Thursday said religious places should not turn into “exchange centres“ for people to get their ill-gotten wealth converted into legitimate cash.

Temples get I-T notices

Arshad Afzaal Khan, It's Temple Run Across India In Hard Times, Nov 18 2016 : The Times of India

Ayodhya religious bodies get I-T notice in black cash fight

The income tax department has issued notices to all religious trusts and major temples in Ayodhya asking them to present their balance sheets as on November 8, when the demonetisation order was implemented. The I-T department swung into action after reports that there was a beeline for all religious trusts for turning black money into white after the demonetisation announcement.

The I-T department has also issued notices to religious trusts being run by scions of erstwhile estates, said sources.

I-T commissioner Vijay Kumar said, “We have served notices to all religious trusts. Ac tion would be taken against trusts whose accounts would have anomalies.“


The remaining part of this page deals exclusively with THE IMPACT OF THE DEMONETISATION OF 2016

See graphic:

Split of the money in circulation by value in FY 2016

Split of the money in circulation by value in FY 2016
From: M.G.Arun and Shweta Punj , Down and Ouch “India Today” 24/11/2016

The immediate impact

The first few days’ impact

The demonetisation of Re.500 and Re.1,000 notes was announced on Tuesday 8 Nov. 2016. It impact began to be felt the next day itself. The following items from

Impact , India Today , November 21,2016
Impact of demonetisation of high value currency (November 2016) on different sectors of the Indian economy- Agriculture, Micro and small units and Transport
From: M.G.Arun and Shweta Punj , Down and Ouch “India Today” 24/11/2016

The Times of India of 12, 14, 15 Nov 2016 chronicle the immediate, three-day impact of the action taken by the government.

ADVANCE PAYMENTS First, many employers have begun to pay their staff in advance -in some instances, salaries for the next one year -in cash. The tendency to pay employees in advance has been noticed in many private educational institutions, which mostly pay their staff in cash, said a source.These staffers will deposit this advance salary in their bank accounts.

Second, some traders are depositing their cash as business revenue to be shown as sales done before November 8 (the day of the ban) but payment received thereafter. Others, particularly wholesale traders, are reporting cash-in-hand in their ledgers to legitimise unaccounted for cash, and having it deposited at a later date. (Day 3)

BANKS SBI gets one month's deposits in one day

The impact of the demonetisation of Re.500 and Re.1,000 notes in 2016 the first three days

Demonetisation: Banks Get Rs 60K Cr In 2 Days

Banks have received nearly Rs 60,000 crore in deposits following the withdrawal of Rs 500 and Rs 1,000 currency notes. SBI alone has raised about Rs 39,677 crore in deposits following the withdrawal of high denomination notes. Bankers expect the surge in deposits to bring down interest rates.

“We have received deposits of Rs 11,000 crore in savings accounts in one day .Normally , it takes a month to mobilise Rs 8,000 crore of savings deposits,“ said SBI chairman Arundhati Bhattacharya, while announcing the results on Friday afternoon.

At the end of the day , the bank said that the collections on Friday amounted to Rs 17,527 crore on the back of Rs 22,150 crore on Thursday . For exchange, the country's largest bank received Rs 723 crore worth of notes on Thursday and another Rs 943 crore on Friday .

According to Bhattacharya, demonetisation tends to have a deflationary impact.Also, the surge in low-cost deposits will bring down the bank's cost of funds.

Taken together, both measures would help bring down interest rates. Before demonetisation, the public held around Rs 14 lakh crore in Rs 500 and Rs 1,000 currency notes. These notes have to be exchanged or deposited in banks and post offices. (Day 3)

5th day: The total cash deposited in banks since the announcement of the withdrawal of the old Rs 500 and Rs 1,000 notes has crossed Rs 1.5 lakh crore, according to estimates received from different banks. SBI received total cash deposits of Rs 75,945 crore and exchanged currency worth Rs 3,753 crore.Against this, there had been withdrawals of Rs 7,705 crore in currency notes of Rs 100 and Rs 2,000 till the 5th day .

CARS Delhi has seen about 70% dip in registration of new vehicles in the past three days. On average, 1,500 vehicles are registered every day in the city. This number has come down drastically since November 8.

Sources said dealers, who also register vehicles in Delhi, had reported a similar drop in the number of registrations. “Some registrations are taking place but the number is minuscule. Registrations have almost stopped in the 13 RTOs in the city ,“ added the official. (Day 3)

JAN DHAN Dead since birth, Jan Dhan a|cs now flush with cash

A large amount of cash has suddenly started flowing into previously inactive Jan Dhan accounts.

The Jan Dhan Yojana was launched in August 2014 with an aim to bring the poor into the fold of banking facilities, and empower them financially by encouraging savings, and easing loan delivery and direct cash transfer.

Accounts opened at the time but not used so far have overnight turned flush with funds. Many such accounts, which held only Re 1or Rs 2 till November 8, now have up to Rs 49,000, the upper limit for deposits that can be done without PAN cards.

A few bank officials told TOI on the condition of anonymity that many accountholders were possibly being exploited by middlemen or the rich to lend their accounts to park cash.

Ajay Agnihotri, manager of State Bank of India's Fatehabad Road branch in Agra, said, “There are around 15,000 Jan Dhan accounts at our branch, and 30% of the account-holders have deposited amounts of up to Rs 49,000 since Thursday (when banks reopened in the wake of the demonetisation announcement). We are quite sure that this percentage will go up in the coming days.“

Another bank official added, “In certain cases, we are quite sure that it is not their money . Gullible persons and those working on a contractual basis in factories are being used by their employers as well as middlemen. However, people should know that the government is tracking all the records and transactions.“

TOI was able to track a few account-holders used for this purpose. One of the victims, who had deposited Rs 49,000, said he was promised Rs 500 in return. He would have to return the rest of the money in some days.

“I was told that if I deposit this amount, my reputation in the bank will go up. The middleman also said he would help me financially in the future,“ he added. (Day 3)

Day 18 Govt: Jan Dhan deposits now Rs 64,252 crore, Nov 26 2016 : The Times of India

Deposits in Jan Dhan accounts [by Day 18] totalled Rs 64,252.15 crore with Uttar Pradesh leading the list with Rs 10,671 crore in these accounts, the government said on Friday . Since the government scrapped high value notes on November 8, nearly 7 lakh new Jan Dhan accounts were opened and the total addition to deposits has been Rs 18,615.55 crore.

Minister of state for finance Santosh Gangwar told the Lok Sabha in a written reply that the number of Jan Dhan accounts totalled 25.58 crore. According to data available on the PMJDY website, there were 25.51 crore accounts as on November 9 with an amount of Rs 45,636.61crore. “Out of 25.58 crore accounts, 5.89 crore accounts (23.02%) are zero balance accounts. PMJDY (Pradhan Mantri Jan Dhan Yojana) scheme allows all account holders the benefits of zero balance accounts,“ Gangwar said citing data up to November 16.

In terms of number of accounts, Bihar followed Uttar Pradesh with 2.62 crore accounts totalling Rs 4,913 crore. West Bengal has 2.44 crore accounts with Rs 7,826 crore and Rajasthan had 1.89 crore accounts with 5,346 crore. Gangwar said all state-run banks have denied giving any instructions to deposit Rs 1 to 2 in the zero balance accounts. Reports had indicated some banks were depositing the token amount to cut their number of zero banalance Jan Dhan accounts.

There has been a surge in deposits in Jan Dhan accounts and the government has said that it is keeping a close watch on any spurt. The limit for deposits have been set at [Rs?] 50,000 in these accounts.

JEWELLERY MEERUT/DELHI/DEHRADUN: With the rumour mill going on overdrive after demonetisation of Rs 500 and Rs 1,000 currency notes on the 1st night, hoarders rushed to jewellery showrooms to convert cash into precious metals. Across Delhi, Mumbai, UP and Uttarakhand, some jewellery shops were seen doing business till late in the night. There was a small queue outside one such shop in Delhi's Green Park Extension at 11.50pm, with no sign of it shutting anytime soon. (Sandeep Rai & Shivani Azad | Did jewellers sell gold to hoarders at Rs 50k/10gm?, TNN | The Times of India Nov 10, 2016)

While jewellers TOI spoke to denied they accepted money that had just been declared illegal, there were reports from various cities — Meerut, Agra, Dehradun, Delhi and Mumbai — that many bullion traders sold gold at a high premium, exceeding the existing market rate of around Rs 30,000 per 10gm.

In Mumbai, the going rate was Rs 37,000-38,000. Reportedly, business in Malad's Natraj Market lasted well into the night with gold rates shooting up to Rs 48,000 per 10gm for a brief period.

Mukesh Mehta, president of India Bullion and Jewellers Association said, "It is true that gold is a safe haven investment at all times. Paper money may let you down, gold will never betray you. Its value can only appreciate. The government's announcement evoked considerable panic among people, and they immediately sought refuge in gold. "

On a daily basis, around 4-5kg in gold ornaments are sold in Uttarakhand, worth Rs 1.5-2 crore, but Gold Association officials, too, were not sure about the amount of precious metals which changed hands on the first night after the demonetisation.

KASHMIR’S STONE-PELTING: Defence minister Manohar Parrikar said [on Day 6 ] that there had been no incidents of stone pelting in the Valley ever since Prime Minister Narendra Modi announced the demonetisation decision. Parrikar also said, "Earlier, there were rates: Rs 500 for stone pelting (on security forces in Kashmir) and Rs 1,000 for doing something else. PM has brought terror funding to zero".

Earlier in the day, news agency ANI had also quoted MHA (Union home ministry) sources as saying that there has been a decline in separatist-instigated violence in the Valley after the surprise demonetisation move.

It is believed that the violence instigated by separatist forces in Kashmir is widely-funded by fake currency notes coming from across the border+ . The intelligence sources had earlier informed the government and the Reserve Bank of India about a mint in Pakistan's Peshawar where fake Indian currency notes were being printed, especially of Rs 500 and Rs 1,000 denominations.

Pakistan's intelligence agency ISI, which oversees the mint, uses organised networks including those run by its clients like Dawood Ibrahim, LeT, besides international criminal networks to push fake currency into India.

In a report to government and RBI, intelligence agencies had claimed a few years ago that Pakistan machinery had achieved "zero-error counterfeit capability" in printing fake Indian notes.

On November 10 2016, The Times of India had reported that intelligence sources have said that the security features on the new notes will be nearly impossible to duplicate for Pakistan and organised criminal networks.

LIQUOR vends from different parts of Delhi reported about 40% dip in sales. (Day 3)

MANDIS Cash low, mandis may close

Biz Slumps, Traders Want To Withdraw 50% Of Daily Sales

A crisis may soon erupt in the city with traders threatening to shut down the wholesale vegetable and fruit markets for a few days unless they are allowed to withdraw at least 50% of their daily sales from banks.

“We haven't been able to pay farmers and labourers for the past three days. Also, sales have suffered because retailers do not have cash to pay us. We have asked the government to allow us to withdraw 50% of our daily sales from banks or we will be forced to close down till the market stabilises,“ Kriplani said.

Business in the mandi slumped by almost 50% on Friday .

Sources said that on Friday several transporters refused to accept cash or cheques. “They said that as petrol pumps were not accepting cash, they would not be able to refuel,“ said a source. This problem was resolved by the evening after the government announced that petrol pumps would continue accepting notes of Rs 500 and Rs 1,000 denomination for another 72 hours.

The problem in the mandi percolated down to the retail market where several vendors had trouble getting stock.While many said that they had taken goods on credit, they were unable to make sufficient sales as customers had run out of cash. (Day 3)

NEWSPAPERS IN MANIPUR to go off stands

Newspapers in Manipur won't hit the stands on Friday [Day 11] as hawkers and distributors are unable to lift their stock after the invalidation of Rs 500 and Rs 1,000 currency notes, forcing publishers to stop publication.

With smaller denomination notes non-existent among hawkers, publishers have been left with no other choice other than stopping printing.

ONLINE VEGETABLE SALES RISE: (Day 7) Gurgaon: Vegetable markets wore a deserted look on Monday. With the cash crunch, people were now buying vegetables and groceries from online and offline departmental stores, using plastic money or ewallets, which has led to a significant rise in the F&B (food and beverages) sales of these players.

Sale of vegetables, in particular, has risen by 30-60% across retailers. A good chunk of it is being attributed to new customers. “We've seen a 35% increase in F&B sales since the demonetisation drive. In the same period, our GMV (gross merchandise volume) of fruits and vegetables has risen by 52%,“ said Prashant Verma, director (marketing) of Grofers, one of the largest online groceries. “This means, not only are more people ordering fruits and vegetables from Grofers, but are also ordering in higher quantities,“ he continued. Gurgaon-based Satvakart has also seen a 60% rise in sale of vegetables and fruits, according to the company's co-founder Rahul Hari. “This step will help convert cash transactions into cashless digital economy and help the economy , as it will bring down cost of handling cash and tax evasion in the long run,“ said Hari.

He added the company has seen a 35% rise in new customers.

POWER BILLS: Gurgaon: It's windfall gain for the Dakshin Haryana Bijli Vitran Nigam (DHBVN) Limited. The government's decision to allow consumers to pay their power bills in defunct currency has filled the discom's coffers with Rs 12 crore. (Day 5)

PROPERTY TAX: Delhi: The three municipal corporations collected over Rs 3 crore as property tax in two days after a public notice was issued that people can utilise Rs 500 and Rs 1,000 notes for payment of property tax till November 14. North Corporation has collected Rs 1.17 crore as property tax while East Corporation has managed to collect Rs 51 lakh. South Corporation has mopped up Rs 2.52 crore, which is the highest among the three civic bodies. As the north and east corporations were going through a severe financial crisis, senior officials claim that the sudden collection will help them carry out development work. Usually, till June 30, people pay property tax the most. (Day 5)

REAL ESTATE: There was a significant decline in the revenue department's collections from registration of property sale deeds in Delhi. Data show that across 11 districts, a total of 674 documents were registered on November 8, resulting in a collection of Rs 6.73 crore. This was the day when the demonetisation was announced. A day later, the collections dipped to nearly half at Rs 3.89 crore.

In stark contrast, the daily revenue collection from registration of documents around Diwali ranged from Rs 5.10 crore to Rs 8.41 crore. On November 4, as many as 970 documents were received and 918 registered. On November 7, too, 842 documents were registered. Since then, it had been all downhill, said officials.(Day 3)

SHOPS Shops down shutters as purchasing power hit

DELHI: Markets across the city continued to wear a deserted look with some even observing a total shutdown on Friday . While traders' associations attribute this to loss of business due to the liquidity crunch, some shop owners admit that the news about income tax raids has created panic among people.

Nearly 80% of shops in the Walled City , which mostly deal in cash, downed their shutters. Naresh Khanna, president of jewellery association of Dariba Kalan market, said there was panic among people and no one was willing to visit the markets. “The government has ruined the wedding season. We decided to shut our shops as there is no business,“ added Khanna. (Day 3)

THEFTS DECLINE: Pune: In the five days following demonetisation, the Pune police did not recorded a single house break-in in the city and Pimpri Chinchwad. All the 39 police stations had registered about five to six complaints of house break-in thefts every day for several months.

According to the officer, even those involved in the house break-in-thefts or the persons planning house break-ins may be in a quandary. "Generally, the stolen cash is available for immediate disposal for the suspects. In the current scenario+ , cash is not available for immediate disposal of the suspects and it may have been one of the reasons for zero registration of house break-ins," he said.

The officer added that valuables like electronic goods, gold and silver ornaments, and cash are stolen from the locked residences. "Suspects can keep the ornaments and electronic goods for disposal at a later date, but cash is always required for immediate disposal. In the current scenario, they may have given up their plans to execute the crimes as people are taking all their household cash to the banks for depositing+ ," he said. (Day 5)

THIEVES take coins, ignore Rs 1,000 notes [Day 11]

I n two separate incidents in Nashik and Dhule districts of Maharashtra, thieves and robbers did not touch bundles of Rs 500 and Rs 1,000 from the crime scenes. In one house, they took away notes of Rs 10, Rs 20 and Rs 100 and all the coins. In the second incident, robbers barged into a house and fled with only small currency notes.

The 30-day impact: economy slows down

Black Money Antidote Stifles Economy, Dec 8, 2016: The Times of India

Impact of demonetisation, as on 8th December 2016; Black Money Antidote Stifles Economy, Dec 8, 2016: The Times of India

Demand Shrinks, Jobs Hit, Sentiment Down

The diagnosis was correct: Black money has been Indian society and business's bane. The prescription wasn't wrong: Replacement of high-value currencies to shut out hoarding black money in cash. It's the administering of the pill that seems to have gone wrong, maybe very wrong.

Designed to cleanse the system of tainted cash, the November 8 demonetisation is beginning to hurt income, demand and jobs, raising fears that the gains of uncovering corruption will be far outweighed by losses to business and economy .

A month into the scheme, 77% of the cash withdrawn (Rs11.5 lakh crore out of Rs 14.9 lakh crore pumped out in old Rs 500 and Rs 1,000 notes) has found its way back into the banking network in the form of deposits. Sure, this is a welcome conversion of some black money into white, on which some depositors will have to pay tax. But this is too minuscule a gain to justify the virtual standstill that the scheme has brought the economy to.

“If a significant portion of the money comes back into the system, say more than 90%, then the assumption that demonetisation would reduce black money would be questionable. That would show that the black economy can be in different forms other than cash,“ says N R Bhanumurthy, professor at the National Institute of Public Finance and Policy.

As TOI reported in the past three weeks, businesses small (such as Agra's lock manufacturers and leather industry) to big (automobile, mobile and grocery) are grappling with falling sales, temporary layoffs and shaken business confi denceThe Centre for Monitoring Indian Economy has estimated the total 50-day cost of demonetisation at Rs 1.28 lakh crore, nearly 40% of annual I-T revenues.Most rating agencies and RBI have scaled back growth estimates for 2016-17.

The change in the government's stated key objectives -demonetisation as a means of stamping out black money and fake currency, increasing non-cash transactions and introduction of an unplanned tax amnesty scheme -shows that outcomes haven't matched expectations.

With the consequences now clear, what can the government do to limit the negative impact in the medium and long terms? “The jury is still out on the net benefits of demonetisation.While the pain is frontloaded, the gains will materialise over time and for that the cash shortage needs to be resolved quickly,“ says D K Joshi, chief economist at Crisil. He recommends a reduction in direct taxes and quick implementation of GST. Bhanumurthy doesn't rule out the chances of a jump in the number of I-T payers and tax revenues.

Luckily, the government can still count on popular support for the scheme, as several surveys show. But this support rides on expectations of future gains -a future not too distant.

Offerings at temples, shrines

Tirupati: 20-40% dip in income

Sribala Vadlapatla, Notebandi reduces Tirupati income by up to Rs 2 crore a day , Feb 18 2017 : The Times of India

According to officials, before demonetisation, TTD's daily income was about Rs 5 crore, including interest on bank deposits.

Apart from the `hundi' collections, TTD's coffers are filled by the sale of tickets, `prasad', etc. “After demoneti sation, we observed a dent of Rs 1-2 crore on many days,“ TTD chairman Chadalavada Krishnamurthy told TOI. Tirumala Tirupati Devasthanam (TTD) chairman C Krishnamurthy said they were looking at a small hike in ticket prices at the Tirupati temple to offset the fall in revenue post-demonetisation.

50-day developments after the demonetisation of 2016

50th day of demonetisation: Top developments, The Times of India, agencies, 28 Dec, 2016

Here's a round-up of the major developments that have occurred in the first fifty days.

1. New notes

After Prime Minister Narendra Modi announced demonetisation, the Reserve Bank began to release new Rs 2,000 and Rs 500 notes to banks for distribution to the public. Citizens were told they had till December 30 to deposit their defunct bills in banks, or exchange them for new notes. However, it was later announced that there wouldn't be any over-the-counter exchange of demonetised notes after midnight of November 24, but that deposits could still be made. An RBI circular relased on December 19 (which was later withdrawn for KYC-compliant citizens) said that deposits of old notes worth more than Rs 5,000 could be made just once till December 30, if the depositor could satisfactorily explain them.

Old notes could still be used for some purposes, such as buying LPG cylinders and railway tickets, till December 15.

Currently, the daily withdrawal limit at ATMs is Rs 2,500 and the weekly withdrawal limit is Rs 24,000.

2. Political parties: Many, but not all, oppose ban

While the government has strongly defended its decision, several Opposition parties - including the Aam Aadmi Party and the Trinamool Congress - have opposed the note ban. Former Prime Minister Dr. Manmohan Singh intervened in the Rajya Sabha, describing the goverment's move as "monumental mismanagement." The Parliament's Winter Session was marked by repeated adjournments, and the logjam in the legislature prompted President Pranab Mukherjee to remark at an event: "For God's sake, do your job (in a remark directed at MPs)."

However, some political parties, such as Bihar Chief Minister Nitish Kumar's Janta Dal (United) have supported the move.

3. Encouraging cashless transactions

Since demonetisation, the government has stressed on the importance of moving towards a cashless economy. For example, on November 22, the RBI doubled the balance limit of of semi-closed Prepaid Payment Instruments (PPIs) to Rs 20,000. On December 8, the Finance Ministry announced eleven measures to promote cashless transactions, including a 0.75 per cent discount on purchases of petrol and diesel (at Central Government Petroleum PSUs) using credit or debit cards, e-wallets and mobile wallets.

4. Lucky draws to encourage digital payments

Earlier this week, the government also launched two lucky draws - Digi Dhan Yojana (for businessmen) and Lucky Grahak Yojana (for consumers) - to incentivise cashless transactions. Winners will be selected on a daily and weekly basis under the Lucky Grahak Yojana and weekly basis under the Digi-Dhan Vyapar Yojana respectively, leading up to a mega draw of Rs 1 crore on April 14, 2017, after which the scheme will be reviewed for further implementation.

5. I-T raids

The Income Tax department has conducted several raids across the country after demonetisation, the most high-profile of which was perhaps the one conducted at the premises of former Tamil Nadu Chief Secretary P Rama Mohana Rao and his relatives. Rs 23 lakh in new currency and Rs 6 lakh in demonetised notes were seized from the premises of some of Rao's relatives and associates, officials said. However, they didn't find any unaccounted money at the former chief secretary's office or house.

6. More than 3,500 I-T notices sent

Since November 8, the I-T department issued 3,589 notices to various entities for alleged tax evasion and hawala dealings, a report said on December 25. The department is set to initiate action against an additional 67.54 lakh non-filers who carried out high-value transactions in the 2014-15 financial year, but didn't file tax returns for 2015-16, the report added.

7. Citizens turn watchdogs

Prime Minister Narendra Modi said during his last Mann Ki Baat address of the year that the government was using information provided by citizens to crack down on those who have unaccounted wealth. In fact, the government asked citizens to write to blackmoneyinfo@incometax. with details about black money hoarders, and received as many as 4,000 messages as of December 20.

8. Pradhan Mantri Garib Kalyan Yojana

A new tax disclosure scheme, the Pradhan Mantri Garib Kalyan Yojana, opened on December 17, and will close on March 31 next year. The scheme provides for 50 per cent tax and surcharge on declarations of unaccounted cash deposited in banks. Declarants also have to park a quarter of the total sum in a non-interest bearing deposit for four years. Information disclosed under the scheme won't be used for prosecution, Revenue Secretary Hasmukh Adhia said.

9. Penalty for possession of demonetised notes

The government will soon issue an ordinance imposing a penalty on possession of defunct notes after December 30. Possession of demonetised notes will only be permitted for the purpose of research and numismatics. However, the ordinance - which the Cabinet is expected to clear in a day or two - will have a clause allowing people to deposit defunct notes at RBI branches (as promised by the government) after giving reasons for doing so. The ordinance is necessary to complete the legal process of demonetisation as banks will stop accepting deposits of old currency after Friday.

Inputs from agencies

60 days later: the impact

Note ban has halved hawala ops: Intel, Jan 7, 2017: The Times of India

The 2-month impact of demonetisation on various sectors of the economy; The Times of India, Jan 19, 2017

J&K Sees 60% Dip In Violence Tied To Terror

The call traffic between hawala agents in India dropped almost by half post demonetisation, says a recent assessment by the central intelligence agencies.

Payments to the end bene ficiary of hawala deals are traditionally in cash, with Rs 500 and Rs 1,000 being the favoured denominations. The demonetisation of these high-value notes on November 9 severely affected hawala operators, and going solely by call traffic, their business may be down by 50%, said an intelligence source.

Terror funds are mostly sourced in counterfeit currency , comprising high-quality fake notes that Indian agencies suspect are printed at the Pakistan government printing press in Quetta and its security press at Karachi.Given this fact and the drop in hawala transactions, demonetisation has dried up funds used for organised stone-pelting in Kashmir and paying overground terror supporters in the state.

Intelligence officials claim that terrorism-related violence in J&K dipped by 60% post the cash ban, with only one major blast reported from the valley in December. An intelligence official claimed that apart from organised stone-pelting, a direct casualty of demonetisation in J&K was the overground network of terror facilitators.“The overground supportbase of terrorists depends on instant cash payments. A weakened OGW (overground worker) network due to demonetisation has resulted in several successful counterterrorist operations in the Valley over the past several weeks,“ said the officer.

A sharp decline in corrupt deals and price correction in the artificially skewed real estate market (by the land mafia) in J&K are among the other positives witnessed in the state in the aftermath of demonetisation.

3 months later, summing up the impact,

Jagdish Bhagwati, Vivek Dehejia and Pravin Krishna, Looking Back At Demonetisation, Mar 30, 2017: The Times of India

The concerns of its legion of critics have all been proven plain wrong

Whatever else supporters and critics of the Indian government's demonetisation exercise may disagree on, everyone will agree that the decision by Prime Minister Narendra Modi, on 8 November 2016, to remove from legal tender high denomination notes (HDNs) accounting for about 86% of the currency stock in value terms was a bold and unprecedented move. Indeed, it is arguably one of the great economic experiments in modern history and will be studied for years to come.

Given the disputes about the measure's wisdom and success, however, it is time to take stock of what was said in the aftermath of 8 November and what has actually transpired since then.

With no compelling precedent for such a move in a growing and stable economy , not one suffering hyperinflation ­ it was no surprise that most commentators failed to grasp its implications and many got it plain wrong.

Take just three frequently repeated assertions.

First, many well-known economists argued that there would be a precipitous drop in GDP growth, the reasoning evidently being that the temporary liquidity crunch caused by demonetisation followed by slow “remonetisation“ would severely affect cash-dependent sectors of the economy , leading presumably to a drop in aggregate demand and hence in GDP growth.

Second, it was suggested that, if the intention was to detect and destroy “black money“, most of this money would escape the trap as large black money holders would find small, and presumably poorer, depositors as “mules“ to deposit money on their behalf and eventually exchange these deposits for new notes. It was argued that we would largely see small deposits below the announced legal threshold for scrutiny ­ with little black money detected and confiscated through this exercise.

Third, it was argued that demonetisation would prove a political disaster for the Modi government, with the populace angered at having to wait in long queues to redeem their old notes into new notes and with ATMs short of cash in the month or so following 8 November.

But the doomsayers were to be proven wrong.

First, GDP growth in the third quarter, October-December 2016, the period during which demonetisation occurred, has shown only a modest dip (from projections made in advance of 8 November) of roughly one half of a percentage point.This is hardly the economic disaster that the critics had imagined.

Indeed, we were perhaps among a small minority of economists who had argued explicitly that, contrary to this emerging consensus, demonetisation could, paradoxically , be expansionary rather than contractionary , or, in any case, that the contractionary impact could be much less than commonly believed. Additionally , the take-up of digital payments, the emergence of informal credit arrangements between sellers and consumers, and the fast pace of remonetisation all together assured that the economy did not contract as much as was widely feared.

Second, data presented to Parliament on 1 February during the Union Budget speech by finance minister Arun Jaitley suggests that very many large deposits were made in the aftermath of 8 November.In particular, deposits exceeding Rs 80 lakh were made into 1.48 lakh accounts, with an average deposit of Rs 3.31 crore (thus accounting for around 5 trillion rupees or about a third of the currency in circulation). Smaller, but still quite significant and potentially taxable, deposits in the Rs 2 lakh 80 lakh range accounted for another 5 trillion rupees.

Taken together these deposits accounted for about two thirds of the currency in circulation. Notwithstanding the multiple instances of malpractice and corruption at retail banks that have been exposed, these figures belie the narrative of clever money launderers circumventing potential taxation altogether through “benami“ deposits.

Third, BJP's success in recent state elections, most notably its thundering rout of all of the other parties in Uttar Pradesh, demolished the notion that there was a political price to be paid for the pain allegedly caused by the “despotic“ demonetisation. Nothing succeeds like success; and the prime minister was clearly vindicated politically in the eyes of many voters, and, belatedly, the witless commenting class ­ some of whom had even resorted to ad hominem attacks against us in the absence of serious counter-arguments.

Finally , it was argued by Harvard economist, Kenneth Rogoff (an MIT student of Bhagwati), that demonetisation could have been pursued gradually ­ with the slow elimination of HDNs, planned over a seven-year period.

If the elimination of HDNs was a goal in itself, this may perhaps have been the ideal approach, but surely this was not the case in India where corruption, tax evasion and the accumulation of black wealth were instead the primary targets.Rogoff 's concern that the Indian system lacked the logistical capability to implement demonetisation has also proven unfounded: RBI succeeded in remonetising the entire system in less than a couple of months, for which Governor Urjit Patel and his team deserve enormous credit.

Macbeth's great soliloquy (Act V , Scene 5) ends with these immortal lines: “It is a tale Told by an idiot, full of sound and fury Signifying nothing.“

The same may be said of much of the commentary on demonetisation.

Jagdish Bhagwati, Vivek Dehejia and Pravin Krishna are, respectively, University Professor at Columbia University; Resident Senior Fellow at IDFC Institute; and Deputy Director of the Raj Center on Indian Economic Policies at Columbia University

Six months later: the overall impact:

The overall impact of the demonetisation of 2016 on
i) digital payments;
ii) widening the tax base;
iii) inflation (March-June 2017).
From The Times of India

See graphic, The overall impact of the demonetisation of 2016 on i) digital payments; ii) widening the tax base;iii) inflation (March-June 2017)

Eight months later: the overall impact

India Today , Demonetisation report card “India Today” 11/9/2017

See graphic

How did Demonetisation fare India Today


No impact in 70 days

Note ban has had no immediate impact on agriculture, finds survey, Jan 24, 2017: The Times of India

A perception survey of village panchayat heads across nine states appears to corroborate nationwide sowing data suggesting that demonetisation may not have had an immediate impact on agriculture.

The survey conducted by Shubhashis Gangopadhyay , Nishant Chadha and Arijit Das of the research organisation India Development Foundation (IDF) covered 48 districts across nine states. It was carried out between January 10 and January 20 and aimed to find out, based on early indicators, whether the impact of demonetisation was uniform across states. The states covered were Madhya Pradesh, Uttar Pradesh, Tamil Nadu, Gujarat, Rajasthan, Andhra Prade sh, Telangana, Jharkhand and Maharashtra.

At the end of the second week of January , government data showed that area sown for rabi crops was 616.2 lakh hectares, 6% higher than in the same period last year. Sowing in the previous year, however, was influenced by deficient rainfall during the southwest monsoon.

IDF's survey data showed that area under rabi had either increased or remained the same in a little over half the villages surveyed. Other key agricultural indicators such as fertiliser use also suggested that demonetisation did not have a negative impact.

According to Gangopadhyay , the survey results showed that demonetisation did not have a uniform impact and there could other factors influencing the results on agriculture. Another indicator that has been widely used as a proxy to measure the impact of demonetisation is food prices. In December, the consumer price index, which measures retail prices, showed a 1.3% inflation in food products, the lowest level in two years.

Food prices have been low regardless of demonetisation, said Gangopadhyay . Prices started trending lower before PM Narendra Modi's announcement of the demonetisation og high value currency notes on November 8 and the main reason for low food prices was weak aggregate demand in the economy , he added. The survey also covered the impact of demonetisation on the use of agricultural labour. The results showed that more than half the sample reported that the use of labour remained unchanged or had increased.

Rabi sowing

Did demonetisation affect the sowing of the Rabi crop in Nov 2016. Figures given in a graphic on this page suggest that there was no effect. There was, instead, an increase in the area sown

Did demonetisation affect the sowing of the Rabi crop in Nov 2016
The above figures suggest that there was no effect. There was, instead, an increase in the area sown
The Times of India

"Black" money mopped up

97% of scrapped notes deposited by Dec 30, 2016

97% of scrapped notes deposited with banks as on Dec 30: Report, Jan 5, 2017: The Times of India

Nearly 97% of the outlawed Rs 500 and Rs 1,000 notes has been deposited with banks as on December 30, according to Bloomberg news service.

Quoting two people with knowledge of the matter, Bloomberg said banks had received Rs 14.97 lakh crore by the last date for depositing old cash, adding that the figures were provisional and could be revised. Rs 15.44 lakh crore, representing about 86% of all currency , was declared void on November 8.

TOI had reported on December 28 that about Rs 14 lakh crore, or 90%, of the demonetised currency had been deposited with banks. At the time the decision to demonetise was announced, the view within the government was that roughly Rs 3 lakh crore of the scrapped currency would not come back into the system. There was also a view within a section of the government that this money , once legally extinguished, would constitute windfall gain for the RBI and could be transferred to the Centre as special dividend.

Govt: ‘99.3% of banned notes back’

99.3% of banned notes back, govt says DeMon met most objectives, August 30, 2018: The Times of India

The Reserve Bank of India has said that 99.3% of demonetised currency, or Rs 15.3 lakh crore of the Rs 15.4 lakh crore demonetised, has been returned. Also, household financial savings in currency touched a high of 2.8% of gross national disposable income — the highest in six years.

The RBI, in its annual report released on Wednesday, said that it has successfully completed the “humungous task of processing and verification of specified bank notes”. It also said an amount of Rs 10,720 crore, representing the value of notes which has not been paid as on June 30, 2018, has been removed from the balance of “notes issued” and transferred to “other liabilities and provisions”.

In 2017, the RBI said that its cost of printing currency notes in 2016-17 had doubled to Rs 7,965 crore from Rs 3,421 crore in the previous year due to demonetisation. The government, however, said that demonetisation had met most of its objectives. Economic affairs secretary S C Garg told reporters that the process of demonetisation was now complete.

Currency growth has slowed down: Govt

Economic affairs secretary SC Garg it was unlikely any additional notes would be exchanged, including those collected by the central banks in Nepal and Bhutan. Garg said demonetisation has substantially achieved the objectives, including the reduction in black money and encouraging digital transactions.

According to Garg, following demonetisation all suspicious deposits have been investigated and additional tax collected. He said currency growth has slowed down and the current level of currency in circulation was Rs 3 lakh crore to Rs 4 lakh crore below what it would have been had it grown at earlier levels. This was corroborated by the RBI report. “While the currency in circulation as on March 31, 2018 accounted for 101.8% of its pre-demonetisation level, it works out to around 88% of its underlying three-year trend had there been no demonetisation,” the report said. The RBI annual report, however, said that people were holding more of their income in currency.

Rs 35,000 cr deposited in MP banks as till March 2017

Ankur Sirothia, Post-note ban, Rs 35k cr cash stash flooded MP banks, March 13, 2017: The Times of India

More than Rs 35,000 crore of stashed cash was pulled out of hidden lockers of corporates and individuals and deposited in 25 major banks within 60 days of demonetisation in Madhya Pradesh, reveal documents accessed by TOI.

More than 40% of these accounts are under I-T surveillance, say sources. Money in Pradhan Mantri Jan Dhan Yojana accounts rose by Rs 461 crore after the note ban -from Rs 863 crore on November 8, 2016, to Rs 1,324 crore on January 19, 2017. This debunks the belief that PMJDY accounts were the main source of depositing undisclosed cash.

The document states that 25 major banks in the state had an aggregate deposit of Rs 2,57,372 crore on November 8, 2016, which shot up to Rs 2, 92,901 crore by January 10, 2017 -a whopping rise of Rs 35,529 crore. The 10 banks that saw the maximum cash deposit were Union Bank of India, Indian Bank, Axis Bank, IDBI, Punjab National Bank, Canara Bank, ICICI, HDFC, Syndicate Bank and Bank of India, say sources.

It was this surge in deposits that led the MP government to constitute a special task force under state finance minister Jayant Malaiya to chart out a roadmap for adoption of digital transactions.

Asked about the large amounts of cash deposited during demonetisation, Ma laiya said it was the job of income tax department to verify the sources. “Training is being imparted at the block levels to promote cashless transaction. College students and volunteers have been roped in for this,“ he added.

The I-T department has conducted 87 search operations and questioned 2,400 individuals across Madhya Pradesh and Chhattisgarh after demonetisation despite being short of personnel.

Rs 35,000 cr deposited in MP banks as till March 2017

Ankur Sirothia, Post-note ban, Rs 35k cr cash stash flooded MP banks, March 13, 2017: The Times of India

More than Rs 35,000 crore of stashed cash was pulled out of hidden lockers of corporates and individuals and deposited in 25 major banks within 60 days of demonetisation in Madhya Pradesh, reveal documents accessed by TOI.

More than 40% of these accounts are under I-T surveillance, say sources. Money in Pradhan Mantri Jan Dhan Yojana accounts rose by Rs 461 crore after the note ban -from Rs 863 crore on November 8, 2016, to Rs 1,324 crore on January 19, 2017. This debunks the belief that PMJDY accounts were the main source of depositing undisclosed cash.

The document states that 25 major banks in the state had an aggregate deposit of Rs 2,57,372 crore on November 8, 2016, which shot up to Rs 2, 92,901 crore by January 10, 2017 -a whopping rise of Rs 35,529 crore. The 10 banks that saw the maximum cash deposit were Union Bank of India, Indian Bank, Axis Bank, IDBI, Punjab National Bank, Canara Bank, ICICI, HDFC, Syndicate Bank and Bank of India, say sources.

It was this surge in deposits that led the MP government to constitute a special task force under state finance minister Jayant Malaiya to chart out a roadmap for adoption of digital transactions.

Asked about the large amounts of cash deposited during demonetisation, Ma laiya said it was the job of income tax department to verify the sources. “Training is being imparted at the block levels to promote cashless transaction. College students and volunteers have been roped in for this,“ he added.

The I-T department has conducted 87 search operations and questioned 2,400 individuals across Madhya Pradesh and Chhattisgarh after demonetisation despite being short of personnel.

Only 1.3% of ₹1,000 notes not returned to RBI

Subodh Varma, Post-notebandi, 99% of Rs 1k notes back with RBI?, August 27, 2017: The Times of India

See graphic: Rs 1000 notes deposited and not deposited with RBI

How many worthless Rs 1,000 and 500 notes we re hoarders of black money left holding on to after demonetisation because they couldn't reveal they had them? No official answer has been provided for eight months, leaving everybody from the common man to the Supreme Court wondering.

Now, data put out by the Reserve Bank of India (RBI) on its website suggests that at least for the Rs 1,000 notes, almost 99% of currency in circulation came back into the banking system.

The data on notes in circulation shows that at the end of March 2017, there were Rs 8,925 crore worth of Rs 1,000 notes still in `circulation'. According to the RBI, “notes in circulation“ are all notes held outside Reserve Bank -that is by the public, banks, treasuries and so on. Thus, this figure represents the total of all Rs 1,000 notes that were not deposited with the banks after notebandi starting November 8 last year.

That might seem like a lot of money . But a look at the total value of Rs 1,000 notes in circulation on November 8 puts it in perspective. On that date, 6,858 million Rs 1,000 notes were in circulation, according to a statement made by Santosh Kumar Gangwar, minister of state for finance, in the Lok Sabha on February 3 this year. These would, thus, have been worth Rs 6.86 lakh crore. Seen against this huge figure, Rs 8,925 crore constitutes a mere 1.3%. In other words, if these figures are right, 98.7% of all 1,000 rupee notes came back to RBI after demonetisation, and a mere 1.3% were not returned. Attempts to get RBI's response to queries regarding this on Friday could not elicit any response.

A similar calculation cannot be done for Rs 500 notes because, unlike the Rs 1,000 notes where there were no new ones, the figure for Rs 500 notes in circulation on March 31, 2017 would mostly be for new notes, and the data does not give us a break-up of old and new notes.

However, Surajit Mazumdar, professor of economics at JNU who analysed this data, pointed out to TOI, “If 99% of the Rs 1,000 notes were returned, there is no reason to think that Rs 500 notes would be different in any significant way. In other words, almost all the old 500 and 1,000-rupee notes appear to have been officially returned. Negligible `black money' has been unearthed.“

Mazumdar added that the total value of demonetised currency on November 8, 2016 was Rs 15.4 lakh crore. Of this, Rs 1,000 notes made up about 44% and Rs 500notes 56%.

The government and RBI have not divulged the amount of returned notes till now. In June this year, the government said that RBI was still counting the returned money and that it may take a longer time.

‘Black’ Rs 3 lakh crore: a ‘profit’ for the government

From Note Ban, Govt Eyes Rs 3L Cr Windfall, Nov 17 2016 : The Times of India

i) The Reserve Bank of India’s assets and liabilities;
ii) Extinguished black cash will be the government’s dividend,
iii) Understanding the magnitude of this windfall.

Extinguished black cash will come as dividend

Of the Rs 14 lakh crore worth of Rs 500 and Rs 1,000 notes that have been scrapped, roughly Rs 3 lakh crore are not likely to be exchanged for new notes ever.This entire extinguished or disappeared black money will be profit to the RBI, and will be transferred to the central government as dividend.

On the balance sheet of the RBI (just like any central bank in the world) currency in circulation is a liability item. Currency that goes out of circulation is equivalent to reduction in liability . In this case, the reduction will be sudden and large, without the need to create new currency of the same amount.

What the government should and could do with the expected Rs 3 lakh crore bonanza is subject to different interpretations and suggestions -ranging from bolstering public finances to boosting infrastructure to building hospitals, affordable housing and schools.

“There will definitely be higher dividend to the government and this can be done under the prevailing law,“ said a former RBI governor who did not wish to be identified. But another former governor, D Subbarao, is not so sure. “Will the RBI treat `the promise to pay' as a continuing liability and transfer an amount equivalent to the wealth destroyed to a special reserve? Or will it treat this as an extinguished liability and account for it as `profit'?“ he was quoted as saying in a report in the Business Standard newspaper.However, he also said that “as required by law the profits have to be transferred to the government.“


99% of scrapped notes back with banks, says RBI report Aug 31 2017 : The Times of India (Delhi)

`Some Money Still Lying Uncounted'

The Reserve Bank of India (RBI) on Wednesday said that Rs 15.28 lakh crore -or 99% of the Rs 15.44 lakh crore demonetised by withdrawal of Rs 500 and Rs 1000 notes on November 8, 2016 -has been deposited with banks. The disclosure dashes hopes of the government earning a windfall by extinguishing trillions of rupees worth demonetised currency that has not been returned.

In its annual report, the RBI said that the number of returned notes does not in clude the money collected by district central cooperative banks and from the notes deposited by citizens and financial institutions in Nepal, which are likely to be accepted. To make matters worse, the central bank's prin ting costs have more than doubled to Rs 7,965 crore in 2016-17 from Rs 3,421 crore in the previous year and its interest income was hit due to demonetisation.

The RBI has been tentative in releasing data on the currency received, stating that the number is only estimation. According to the RBI, some of the returned money is still lying uncounted in currency chests. Till such time the notes are processed by the RBI for numerical accuracy and authentic ity , only an estimation of specified banknotes received back is possible,“ the RBI said.

Demonetisation also drained RBI's finances. Its interest income dropped 10% to Rs 66,051 crore from Rs 73,543 crore in the previous year.RBI said income from domestic sources fell 17% to Rs 43,232 crore as it had to pay out more interest on the money that it mopped up from banks as part of liquidity management post demonetisation. As a result, its dividend to the government for 2016-17 halved to Rs 30,659 crore from Rs 65,876 crore in the previous year. Dividend was also lower because RBI chose to transfer Rs 13,000 crore to its contingency fund ­ a first in three years.

RBI said 3.7 lakh pieces of Rs 500 fake notes (old) were detected and among Rs 1,000 notes, 2.56 lakh pieces were detected. Overall only 0.0013% of the Rs 15.4 lakh crore of demonetised currency was fake. RBI said 199 pieces of fake Rs 500 notes (new) were also unearthed. While note ban may not have resulted in black money being destroyed in the form of unreturned notes, it may help trace unaccounted wealth, RBI said.

Rs 5,000 cr black money detected in 5 months

Apr 12 2017, The Times of India

Rs 5k cr black money detected after Nov 8

Shortly after the note ban, tax authorities carried out more than 1,100 searches and surveys which led to undisclosed income of over Rs 5,400 crore, finance minister Arun Jaitley told Rajya Sabha on Tuesday.The FM said the action taken by the I-T department had identified 18 lakh people whose tax profiles did not match with the cash deposits made during the demonetisation drive. The tax department sought online responses from them. Jaitley said there was no official estimation of black money parked abroad. He said information was received from various channels. TNN

Demonetised currency, returned to banks

The Hindu’’, December 14, 2016

Till 10 Dec 2016

Nearly 80% of old notes turned in

RBI’s note issuance short of demand

About Rs. 12.44 lakh crore of Rs. 500 and Rs. 1,000 notes, representing nearly 80 per cent of the demonetised currency, had been returned to the central bank and the currency chests until December 10, the RBI said on Tuesday.

Bank notes worth Rs. 4.61 lakh crore were issued to the public by banks over their branch counters and through ATMs from November 10 to December 10, 2016, the RBI added.

The RBI’s data indicates that new notes issuance has not kept pace with the amount of scrapped notes that have been tendered by the public to banks.

That being the case, the RBI needs to ensure that its currency note presses fire on all cylinders. The public has been facing a serious shortage of currency notes following the demonetisation of high-value notes, which took effect on November 9.

In response to media reports of irregular transactions in various bank branches and the alleged involvement of bank staff, Deputy Governor SS Mundra said, “In an operation of this size, there are always elements who would have behaved otherwise than what is expected of them; we are keeping a constant vigil on the same.”

To a question on whether a show-cause notice had been issued to Axis Bank, Mundra said “There is no such thing at this point...Wherever such actions are reported, enquiries are made. But as of now no show-cause notice has been issued by us.”

On December 12, 2016, the RBI clarified that it has not initiated any action to cancel the banking licence of Axis Bank in the wake of certain allegations about irregularities.

Rs 4 lakh crore undisclosed funds enter bank accounts

Sidhartha, Rs 4L cr of cash deposits so far may be suspect, estimates I-T, Dec 30, 2016: The Times of India

Flow of scrapped notes since November 8, 2016; The Times of India, Dec 30, 2016

Based on initial estimates that as much as Rs 4 lakh crore of undisclosed funds may have flown into bank accounts post-demonetisation, the tax department is gearing up to serve notices on those who cannot explain the source of the money .

Data with the income tax department shows that till December 17, cash deposits of Rs 80 lakh or more added up to nearly Rs 4 lakh crore, which flowed into 1.14 lakh bank accounts (see graphic). Tax de partment officials suspect that a large chunk of this amount could have come from those who dodged taxes.An exercise is on to verify the genuineness of the deposits and tally them with tax returns, with officials saying there was no way genuine taxpayers would keep hoards of cash at home. The income tax department has already served around 5,000 notices to those who have deposited unusually large amounts of cash in banks.

“People thought the government will not do anything and kept depositing money . We have been analysing data on a weekly basis and we are going to act against those who have unaccounted money . Obviously , we want everyone to come forward and themselves pay taxes,“ said a senior official, adding that the government was hoping to earn “good revenue this year“.

The government's message that it was keeping a close watch came at a time when it an nounced a fresh scheme which would allow those with undisclosed cash to come clean by paying 50% tax. Those who don't opt for the scheme, open till March 31, will have to shell out around 90%. Sources said nearly 60 lakh individuals and firms had made deposits of around Rs 7 lakh crore in old notes but were quick to add that some of that could be from “institutional sources“ which could be explained.

While data for deposits of as low as Rs 30,000-40,000 is being analysed for Jan Dhan and dormant bank accounts (where there was no activity for a year or two), there are certain other aspects that have really caught the taxman's attention.

For instance, between No vember10 and the end of November, 1.77 lakh borrowers had repaid loans of over Rs 25 lakh using old notes -with the repayments adding up to nearly Rs 50,000 crore. The list included companies and firms apart from individuals. Officials said the tax department intends to go after those who made large repayments in cash. Similarly , the tax department, sources said, has come across instances where bank accounts that were not compliant with KYC norms saw deposits of over Rs 1crore.

The data is interesting considering that the scramble to deposit old currency with banks has led many to wonder whether a large number of suspected tax evaders had devised ways to launder their unaccounted money . The fear that tax dodgers may have aced the system was the goad for the government to switch gears and launch a new version of the Income Disclosure Scheme. The nature and quantum of deposits could possibly be both because of the willingness to turn undeclared income into legit money after forfeiting more than half of it by way of tax or because of the confidence that authorities would find it difficult to trawl through the mine of data to spot those who thought they had gamed the system. Importantly , the data does not bear out the widespread misuse of Jan Dhan accounts.

While deposits in Jan Dhan accounts have come under the scanner, officials said the amount involved was not very large. Contrary to the notion of widespread misuse of the nofrills bank accounts, a mere 34 saw deposits of Rs 10 lakh or more with the highest deposit being Rs 58 lakh.

Sources said the maximum number of deposits into Jan Dhan accounts were made in West Bengal and Karnataka, with Delhi topping the list among `urban centres'.

Sources said the estimate of undisclosed money was preliminary and based on multiple sets of data that the income tax department was analysing. The government had earlier suggested that it was in for a “windfall gain“ post-demonetisation.

Counterfeit currency deposited with banks

In the first 20 days: 3.4% of all notes returned, 3.2% of the counterfeit bills estimated to be in circulation

Chethan Kumar, 3.4% Of All Notes Back In System Are Fake, Dec 05 2016 : The Times of India

Demonetisation aimed at removing counterfeit bills

One of the main objectives of the government's decision to demonetise the old Rs 500 and Rs 1,000 notes was to root out fake notes, which are used for terror funding among other crimes.

According to documents available with TOI, 1.39 lakh (3.4% of all notes returned) fake notes with a face value of Rs 9.63 crore had been returned to the banking system by November 27, nearly 20 days after the demonetisation decision kicked in.

In the first half of 2016, the Indian Statistical Institute (ISI) had pegged the face value of fake notes in circulation at Rs 400 crore -Rs 1,000 notes accounted for 50% of the sum, while the old Rs 500 accounted for at least 25%.According to the ISI's estimates, together, the fake notes of the Rs 500 and Rs 1,000 denominations had a face value of Rs 300 crore.

This means that the fake notes deposited in the wake of the demonetisation announcement account for 3.2% of the face value of the counterfeit bills estimated to be in circulation. Experts say this is an indication that the majority of the fake notes are either with terror groups or black money hoarders, who cannot return these notes.

2014-17: Banks report 600% rise in suspicious transactions

See graphic:

The rise of suspicious banking transactions, between 2014 and 2017

The rise of suspicious banking transactions, between 2014 and 2017; Banks report 6x rise in dubious dealings, August 31, 2017: The Times of India

Banks report 6x rise in dubious dealings, August 31, 2017: The Times of India

Demonetisation resulted in a near six-fold surge in the number of suspicious transactions reported by banks to the Financial Intelligence Unit during 2016-17 as banks chose to play safe and share data on high-value cash deposits, which did not tally with past trends.

The RBI, in its annual report, said filings with FIU had increased almost 4.5 times. The filings include reports by insurance and housing finance firms as well as intermediaries such as stock brokers. But a large chunk is related to deposits made during demonetisation.

As reported by TOI on January 4, some banks, especially in the private sector, had seen an increase of nearly 10 times in suspicious transactions that were reported. This was also the fallout of investigations against some branch managers, who were seen to be misusing the cash deposit facility and were accused of helping launder money .

Accounts that did not comply with KYC norms or had seen large cash deposits after being dormant for months as well as deposits higher than normal were reported to FIU, banking sources said.

The tax authorities will also scan data available with FIU, which is part of the antimoney laundering set up.“The trail of deposits of specified bank notes into accounts may provide information to the revenue authorities in tracing unaccounted money .During 2016-17, the number of suspicious transaction reports filed by banks and other financial intermediaries with the FIU, witnessed a quantum jump,“ RBI report said.

11 November 2016-21 March 2017/ Unusual cash deposits hit ₹1.7 l cr: RBI

Allirajan M, November 17, 2017: The Times of India

See graphic:

Excess growth in bank deposits, 11 Nov 2016- 21 Mar 2017

Excess growth in bank deposits, 11 Nov 2016- 21 Mar 2017
From: Allirajan M, November 17, 2017: The Times of India

The jury is still out on the benefits of demonetisation of high-value currency notes. But unusual cash deposits in specific accounts, which are usually less active, are estimated to be around Rs 1.7 lakh crore, according to an RBI study on the impact of demonetisation on the financial sector.

A significant amount of specified bank notes (SBNs, or demonetised notes) flowed into special types of accounts such as ‘basic savings bank deposit accounts’, Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts, dormant or inoperative accounts, cooperative banks’ accounts with scheduled commercial banks (SCBs), bullion trader/ jewellers’ accounts as well as loan accounts.

The total cash deposits in these accounts with 52 banks during November-December 2016 were estimated at Rs 4.36 lakh crore. Cash deposits in these accounts during September-October 2016 were Rs 2.7 lakh crore. “Thus, the variation of Rs 1.657 lakh crore can be assumed to be the increase in cash deposits under these accounts due to demonetisation, given that there is a lack of noticeable activity in such accounts during normal times,” the RBI said.

Interestingly, the detection of fake notes doubled after demonetisation.

Currency in circulation

2017, Sept: 12% below pre-demonetisation level

Mayur Shetty, Cash in economy settles at 12% below pre-demonetisation level, September 7, 2017: The Times of India

Currency in circulation has dipped for the second consequent week, according to data released by the RBI. This shows that cash in the economy has settled at a lower level, resulting in over Rs 2.3 lakh crore remaining with banks following demonetisation.

Following demonetisation in November 2016, currency in circulation fell from nearly Rs 17.9 lakh crore to a low of just under Rs 9 lakh crore in January. Since then, the amount of cash in the economy has been growing week after week as the RBI's printing presses worked overtime. Last two weeks, however, banks have been depositing more with the central bank than they withdrew, which is seen as an indicator that currency requirement has stabilised. Of the multiple objectives for demonetisation announced by the government, two important ones were reducing the extent of black money in the system and, second, reduce dependence on cash for transactions by promoting digital payments. Black money was expected to decline as many in the government believed that a large chunk of currency with the public would not be deposi ted with banks and would be extinguished. However, over 99% of the currency has been deposited with banks.

While the extinguishment of black money did not happen, the second objective of reduced dependence on cash seems to have been achieved. At the latest level, currency in circulation is 88% of peak levels before demonetisation.

The government has set a target of achieving 2,500 crore digital transactions per month by March 2018. As against this, the current monthly transactions are little over 1,000 crore. Besides an increase in digital payments, a slump in real estate is also seen to be reducing the demand for cash. Some lenders like HDFC Bank are rationalising their ATM network expecting lower demand for cash.

According to RBI deputy governor Viral Acharya, one way of identifying stability in currency level was “when it bounces around its level“. “I think it is only recently that this has started happening, otherwise we have just been remonetising at an increasing rate and currency in circulation has been going up,“ said Acharya.

The reduction in currency in circulation and the consequent increase in bank deposits has led to a formalisation of savings in India. “Compared to FY2016, savings in currency as a proportion to GDP fell by 355bps to -2.1%, while deposits picked up 250bps to 7.4%. (100 basis points, or bps, amounts to 1percentage point.) Shares and debentures' allocation increased by 90bps to 1.2% and insurance funds' allocation picked up by 100bps to 2.9%. Financial liabilities increased by 60bps to 3.7%,“ said a report by Kotak Economics Research.

Cashless transactions

Currency with public, digital transactions

Change in levels of currency with public and digital transactions in the year following the demonetisation of 2016, state-wise
From November 8, 2017: The Times of India

See graphic,

Change in levels of currency with public and digital transactions in the year following the demonetisation of 2016, state-wise

Debit card use increases

Mayur Shetty, Customers Of Small PSU Banks Driving Change, March 27, 2017: The Times of India

After DeMon, debit card spend more than doubles, tops credit

Debit cards have conclusively displaced credit cards as the primary mode of payment in the country following demonetisation. Until October last year, despite outnumbering credit cards by a factor of more than 25, debit cards accounted for only 42% of the total card spend. This has jumped to 60% after demonetisation, which was announced on November 8, 2016.

The change is largely driven by small public sector lenders like Oriental Bank of Commerce and Punjab & Sind Bank, where usage of cards has gone up nearly five times. Debit card transactions tripled--from October 2016 levels--in December. Transactions in January slipped to double those in October last year. However, according to payments companies, they are seeing sticki ness in use of debit cards for utility and petrol bill payments and travel bookings. Last October, public sector banks saw transactions worth Rs 10,893 crore from the 61.7 crore debit cards they had issued till then. As against this, private and foreign banks had reported transactions worth Rs 11,048 crore although their debit card base was much smaller at 12.25 crore. This has changed after demonetisation. In January this year, public sector banks reported debit card transactions valued at Rs 29,339 crore against Rs 19,664 crore worth transactions recorded by debit cardholders of private banks.

Pre-demonetisation, in October, for every 100 debit cards in circulation there were only 19 transactions in a month. This jumped to 54 transactions a month in December, but dropped to 40 a month in January 2017. Bankers point out that if debit cardholders use their cards even once a month on an average, the share of debit cards in transactions will cross 80%.

Public sector bank customers in smaller cities are expected to drive the debit card usage. “In metro centres, the credit card penetration is high and increasing. Given a choice, customers will use their credit cards to make payments because of rewards. But in smaller towns debit card is the only instrument that the customer has,“ said an official with the National Payments Corporation of India (NPCI).


Impact on crime

See Delhi: Crime for the first month’s impact on crime in Delhi

The Naxalite strategy: Jan Dhan to launder notes

See also Naxalism/ Maoism: India

Jaideep Deogharia, Jan Dhan a|cs to help Maoists convert levy, Nov 11 2016 : The Times of India

The CPI (Maoist) zonal and special area committee (SAC), which collects levies in cash for the organisation's daily functioning, is not worried about the sudden demonetisation of Rs 500 and Rs 1,000 currency notes.The Jan Dhan accounts of villagers in rural Jharkhand will bail out the rebels by converting the “redundant“ currencies into usable instruments, they believe. Maoists who possess Rs 500 and Rs 1,000 currency notes in large numbers -collected from contractors, mining companies and industrialists as “levy“ -have issued instructions to their cadres to hold talks with the villagers and expedite a workable plan.They count on the villagers as supporters and hope the latter will deposit money in their Jan Dhan accounts for a commission and help them. Bihar-Jharkhand Special Area Committee (BJSAC) spokesperson Gopalji said the levy collected is handed over to the central committee which, in turn, allocates money to different zonal and special area committees for their functioning. “Zonal and special area committees, in particular, do not have much in cash but the ban will create trouble unless the notes are exchanged,“ he said.

Digital economy


No. of transactions (in millions), 2016-19
From: July 17, 2019: The Times of India

See graphic:

No. of transactions (in millions), 2016-19

Financial institutions: banks, insurance, MFs

Benefit- greater investments flow in financial institutions

May 4, 2018: The Times of India


Hiring in India's private banking sector moved into high gear last year as the country's rich started shifting investments away from property and gold and into financial markets

Real estate and gold purchases were often financed with cash as a way to avoid taxes, and have come under greater scrutiny since demonetisation

India’s clampdown on unaccounted cash has sent a flood of money into the private banking industry, prompting a major lender to embark on a hiring binge for wealth managers.

HDFC Bank Ltd. -- the most preferred wealth manager in India among high net worth clients surveyed by Euromoney -- plans to add as many as 150 relationship managers by the end of 2020 to the current 250, said Rakesh Singh, group head of private banking. He started hiring at a faster pace last year, when he added about 50.

The recruitment drive at the private banking unit, which started in the early 2000s, moved into high gear last year as India’s rich started shifting investments away from property and gold and into financial markets, Singh said in an interview last month. Real estate and gold purchases were often financed with cash as a way to avoid Indian taxes, and have come under greater scrutiny since demonetisation.

“Demonetisation has been the inflection point for the private banking business in India,” Singh said, predicting HDFC Bank’s wealth assets will double to a record $16 billion over the next three years. “Conversations on investments in asset classes like real estate and gold have ceased, and that money is going into equity, debt and so on.”

Singh’s unit manages wealth for 16,000 of HDFC Bank’s richest clients. HDFC Bank, India’s largest private-sector lender by assets, was ranked among the country’s top three wealth managers in a 2018 survey by Euromoney. Its shares have risen 28 per cent over the past year, more than double the 11 per cent gain in the broader Bankex index.

Singh said HDFC is seeking to grab a larger share of the growing number of millionaires in India, as well as to get existing clients to do more transactions and invest more of their money through the bank.

Unlike larger rivals IIFL Holdings Ltd. -- which has some 300 relationship managers -- and the wealth management business of Kotak Mahindra Bank Ltd., HDFC Bank relies on commissions for its wealth management revenues, rather than on advisory fees or bespoke investment products.

One immediate investment opportunity HDFC Bank will steer clear of is India’s $210 billion pile of stressed assets, touted by some as a chance to buy firms at a steep discount. The nation’s revamped bankruptcy process is in full swing but risks being delayed by factors ranging from a shortage of judges to legal challenges.

“We believe it is not the right thing for high net worth individuals to get exposed to stressed asset investments,” said Singh. “It is better to wait for two years for the process to get well settled, and rough edges to get sorted out” before plunging in, he added.

Life Insurance Premiums

Rachel Chitra, Life cos' premium grows up to 7-fold, Dec 21, 2016: The Times of India

Life insurers saw an increase of up to seven times in premium collection to Rs 6,700 crore for the month of November as more people took to buying policies, according to Irdai data. Post demonetisation, there was 50% growth year-over-year at private insurers, even as LIC saw total premiums rise 141%.

While a majority of this could be due to people wanting to move to safer havens of investment given the market turmoil, an executive from fraud management firm LexisNexis said that a percentage like this could be explained by people using the insurance route to convert black money to white. “The government, however, is keeping a tab on those purchasing high value insurance policies,“ said Shivakumar Shankar, MD, LexisNexis, which currently provides fraud management solutions to more than 13 life insurers in India.

Mohit Rochlani, director (operations and IT), IndiaFirst Life Insurance, said, “Most insurance companies will ask for PAN card number for high-value cash payments of single-premium policies. Also, we highlight any suspicious transaction to the financial intelligence bureau.“

And it's these single-premium policies that have seen an upsurge. At LIC, a whopping Rs 6,438 crore was booked in individuals buying single-premium policies in November 2016, compared to Rs 899 crore for the same month in the previous year -a sevenfold increase. The regulator, in a bid to track highcash transactions, has mandated that insurers cannot accept more than Rs 50,000 in cash.

For accepting premiums above Rs 50,000 in cash, the prospective customer will be asked to furnish their PAN card.

MFs see ₹93,000cr surge in Q1

MFs see Rs 93k-cr surge in Q1 on note ban, says RBI study, August 12, 2017: The Times of India

Nov-June '17 Inflows At Rs 1.7L Cr Against Rs 9,160Cr A Year Ago

Two studies published by the Reserve Bank of India (RBI) have said that demonetisation has led to `financialisation' of savings with households choosing mutual funds and other financial investments that had turned attractive vis-à-vis gold, which had seen a decline in price.

According to the first study, banks have experienced excess deposit growth in the post-demonetisation period, leading to a fall in interest rates. This, in turn, triggered a flow of money into non-banking financial intermediaries -such as mutual fund schemes, life insurance policies and non-banking finance companies -which saw their balance sheet expand by 14.5% during 2016-17. 14.5% during 2016-17.

The study says that new legislation like the goods and services tax (GST), the Real Estate (Regulation and Deve lopment) Act, 2016 (RERA) and the Benami Transactions (Prohibition) Amendment Act, 2016 will promote formalisation of the economy . This will sustain the shift to financial instruments.

The change in investor behaviour is in line with the forecast by former RBI governor D Subbarao immediately after demonetisation. Subbarao had said that real estate, which was a traditional haven for black money , will face a squeeze and households, who have traditionally parked a bulk of their savings in physical assets like gold and dwellings, will be positively biased towards financial savings.

The first study places the excess deposit growth in the banking system during the demonetisation period (ie, November 11, 2016 to December 30, 2016) at 4.0-4.7 percentage points. “In nominal terms, excess deposits accrued to the banking system due to demonetisation are estimated in the range of Rs 2.84.3 lakh crore. The unusual cash deposit in specific accounts, which are usually less active, is estimated to be in the range of Rs 1.6-1.7 lakh crore,“ the report said.

The second study shows how the sustained move towards `financialisation' has resulted in money moving from bank deposits to the capital markets in search of better returns. According to the report, assets under management (AUM) by mutual funds touched an all-time high of more than Rs 17.5 lakh crore by end-March 2017 and further increased to Rs 20 lakh crore at end-July 2017, boosted by rising stock indices. Besides mutual funds, insurance companies too saw a surge.

Micro-finance institutions: Loan repayments improve

The Hindu Business Line, November 20, 2016


The micro-finance industry seems to be on a path towards recovery with loan repayments (from customers) improving and disbursals resuming.

Repayments/loan recoveries for MFIs had come to a near standstill since old Rs. 500 and Rs. 1,000 ceased to be legal tender.

Some major names like Ujjivan and Arohan claim that re-payment have improved on a comparative basis (since the days demonetisation was announced). Disbursals too have begun from their end.

However, on the other side, there’s Village Financial Services (VFS) which still claim repayments to be an issue.

Bandhan, on its part, may not face issues of repayment but it has still not resumed disbursals. The company will review the decision to resume disbursements after November 19.

“Collections have started picking up a little and is varying the range of 10-35 per cent depending on the size of the micro finance institution,” Ratna Viswanathan, CEO, Micro Finance Institutions Network (MFIN) — the self regulatory body of MFIs — told BusinessLine . This means that on an industry level, for every Rs. 100 that MFIs were supposed to get back, they are recovering between Rs. 10 and Rs. 35.

If sources are to be believed, then original expectations in terms of recovery for the sector were far bleaker.

Collections resume

As Manoj Nambiar, Managing Director, Arohan Financial Services, points out, there’s been an improvement in collections over the last two/three days. Against every Rs. 100 due, Arohan is able to collect around Rs. 40-60. This number had previously fallen to Rs. 30.

“There is slow recovery now. This comes after the first week of demonetisation, when repayments had fallen or stopped,” he maintained.

Nambiar adds that if all MFIs were allowed to accept old Rs. 500 and Rs. 1,000 notes from customers, then repayments wouldn’t have be impacted. Arohan — which has an outstanding loan book of Rs. 1,000 crore — has also begun cash disbursals.

Ujjivan Financial Services’ Managing Director Samit Ghosh talks of a similar recovery. He too claims that repayments have started coming-in and at improved levels over the time demonetisation announced. Disbursements too have begun. The company’s outstanding loan book is around Rs. 6,000 crore.

Kartick Biswas, Managing Director of Uttrayan Financial Services, also talks of there being a regularisation in repayment cycles over the last few days.

“Collections were stopped for two to three days since November 9. Collections improved last week (November 14 onwards),” he said.

Rural scenario

However, MFIs which work predominantly in rural belts are not that happy. Repayment cycles there are still slow compared to elsewhere banks and ATMs have comparatively more cash. Ratna Vishwanathan, the CEO of MFIN too agrees that repayment cycles in urban areas seem to be better; when compared to predominantly rural ones. In fact, Kuldip Maity, MD, VFS, said the issues with repayment persist at his end.

“Since cash flow in the hinterlands are still an issue we see problems with repayments. They have slowed down substantially for us,” he maintained.

“May be recoveries are better in areas where cash (at banks and ATMs) is being replenished fast,” Maity added.

73,000 deregistered firms deposited ₹24,000 cr in banks

After DeMon, 73k deregistered firms deposited ₹24k cr in banks, June 4, 2018: The Times of India

As many as 73,000 firms that had been deregistered deposited Rs 24,000 crore in bank accounts after demonetisation, according to government data.

As part of a crackdown on black money flows and illicit assets, the corporate affairs ministry has struck off the names of around 2.26 lakh companies that have not been carrying out business activities for long.

Data compiled by the ministry showed that out of these firms, bank details of 1.68 lakh showed that post-demonetisation cash was deposited in these accounts.

“Out of this, 73,000 companies deposited Rs 24,000 crore. We are getting their details,” the ministry said in a document, adding that 68 companies are under investigation.

Growth of Indian economy; inflation

IMF: India 2nd fastest growing economy after demonetisation

The Hindu Business Line

Note ban impact: India loses fastest-growing economy tag

China regains top spot as IMF trims India’s FY17 growth forecast to 6.6%

The International Monetary Fund (IMF) has trimmed its GDP growth forecast for India by one percentage point in its report, citing the impact of demonetisation, and said the country would cede its position as the world’s fastest growing large economy in 2016, with China set to regain the top spot.

In its World Economic Outlook Update, the IMF has pegged India’s growth rate at 6.6 per cent for the ongoing financial year, and 7.2 per cent in 2017-18. It expects GDP growth to rise to 7.7 per cent in 2018-19.

“(This was) primarily due to the temporary negative consumption shock induced by cash shortages and payment disruptions associated with the recent currency note withdrawal and exchange initiative,” said the report released on Monday.

In October 2016, the IMF had projected a GDP growth of 7.6 per cent for India this fiscal year and the next.

The IMF’s downward revision comes soon after Finance Minister Arun Jaitley cited tax collection data for November and December to underline that the decision to demonetise notes of ₹500 and ₹1,000 notes would not hurt economic activity.

Demonetisation drag

The adverse impact of the note ban on the economy was also highlighted by rating agency Moody’s Investors Service and its affiliate ICRA. The two agencies said on Monday that though India would remain one of the fastest-growing major economies in 2017, GDP growth would moderate in the first half of the year.

ICRA expects growth of gross value added (GVA) at basic prices to ease to about 6.6 per cent from around 7 per cent in 2016, with a likely pick-up in the second half of 2017.

Informal sector hit

Subodh Ghildiyal, DeMon hit informal sector: Survey, Sep 5, 2017: The Times of India

 `NREGA Rescued Labourers As It Provided Safety Net In Times Of Need'

Demonetisation hurt the informal economy and triggered a rush for distress labour under job guarantee scheme (MGNREGA), says Economic Survey-II, though the wages available under the scheme may also have helped contain rural unrest and a political backlash to some extent.

Studying various dimensions of a spike in demand for work under MGNREGA after demonetisation in November 2016, the survey , the official document capturing the state of economy for 2016-17, noted that there was a 14-week stretch when demand for work surged before falling into a familiar groove following March, 2017. This would indi cate that the distress caused by demonetisation eased in around three months.

Interestingly, the survey has found that demonetisation's impact was stronger in “less developed states“ topped by Bihar ­ with a 30% hike in demand for work over previous years. It could be that these states do not offer many options for work and are a source of migrant labour. However, Uttar Pradesh bucked the trend with no drift towards higher MGNREGA during this period.

The observations, released recently, put an official stamp on estimates that the Centre's decision to scrap Rs 500 and Rs 1,000 notes led to unemployment in the informal sector which is heavily dependent on cash and put migrant labour ers on the train back home where they took refuge in “social insurance“ of assured hard labour.

“In sum, three tentative conclusions suggest themselves. First, demonetisation's impact on the informal economy increased demand for social insurance, particularly in less developed states. Second, this impact peaked between December and March .... And, finally, that MGNREGS and its implementation have met the programme's stated role of being a social safety net during times of need,“ the survey noted. The last observation possibly explains why the country ducked widespread unrest despite the government sucking cash out of the system.The job scheme, once derided by Prime Minister Narendra Modi as a “living monument of Congress's failures“, provided succour to those who lost jobs after notebandi through alternative employment. The Modi government persevered with the scheme and has argued that it has made it more productive and leak proof.

A detailed analysis of demand for work has found a cu rious pattern. After demonetisation, the demand surprisingly slumped for four weeks, only to be followed by four weeks of recovery . Then, for a 10-week stretch, the demand rose appreciably , before returning to normal after mid-March.

Among the states where MGNREGA employment soared for nearly three months were Bihar, Chhattisgarh, Rajasthan, Jharkhand, West Bengal and Odisha.

While finding it “puzzling“ that first four weeks post-notebandi logged a slump in demand for work, the survey suggests that a surge was possibly offset by “constraints on the ability of local government to supply MGNREGA work“ ­ a reference to absence of cash from the system.

Jan-March 2017: growth down from 7% to 6.1%

June 1, 2017: The Times of India

Economists Cite Effect Of Note Ban

The Indian economy slowed down sharply in the January-March quarter to 6.1%, down from 7% in the previous quarter, while the overall pace of growth in 2016-17 moderated to a threeyear low of 7.1%, according to data released by the Central Statistics Office (CSO). Economists attributed the drop in growth to the impact of the government's move to scrap some high value notes in November last year hurting sectors such as construction.

Purely based on the rate of quarterly growth, the Indian economy may have ceded its place as the fastest growing major economy in the world to China, which expanded 6.9% during the January-March period in 2017.

Overall growth in 2016-17 slowed from the previous year's upwardly revised 8% growth. In terms of annual GDP growth, India remains the fastest growing major economy in the world. The 7.1% growth was in line with government estimates.

Critics of the note ban move had predicted that demonetisation would hurt growth significantly .

The government had defended the measure, saying there could be transient impact on some sectors but in the long term it would benefit the economy . The distinct downtrend in GDP growth over the quarters of fiscal year 2017 suggests that the slowdown in growth that had already set in, was intensified by the note ban,“ said Aditi Nayar, principal economist at ratings agency ICRA.

Chief statistician T C A Anant said a separate analysis was needed to assess the impact of the note ban on growth but admitted it could be among the factors which may have impacted the economy in the third and the fourth quarter.

“The economy was expected to outperform in the fiscal gone by with favourable monsoon and wage increase post implementation of the 7th Pay Commission, which was expected to spur consumption in the second half of the fiscal. However, demonetisation had temporarily slowed down economic activities in the third quarter due to cash crunch,“ said Madan Sabnavis, chief economist at Care Ratings.

He said the manufacturing sector had witnessed a drop in growth while services like trade and transport were adversely affected. The banking sector, however, benefitted from demonetisation with increased bank deposits and liquidity in the banking system, he said.

“The remonetisation by the government and RBI brought back the cash position in the system to normalcy, abating the adverse impact on GDP. Nonetheless, on the annual basis, the impact of demonetisation is still visible with economy growing at a slower pace in FY17 than the previous year,“ said Sabna vis. But most experts expect the economy to post robust growth in the quarters ahead on the back of robust monsoon rains and reform measures unveiled by the government.

“It is agriculture and government spending that kept GDP growth at 6.1% in the fourth quarter. Construction and financial services mate rially slowed down in the fourth quarter. Slowing investments is also a key worry,“ said D K Joshi, principal economist at ratings agency Crisil. “Going ahead we expect GDP growth to rebound to 7.4% in fiscal 2018 on the back of good monsoons, somewhat softer interest rates and bounceback in exports,“ he said.

Apr-June GDP growth 5.7%; 3-year low> GST, DeMon

GDP growth at 3-yr low of 5.7% in Apr-June as GST, DeMon bite, September 1, 2017: The Times of India

See graphics  :

Changes in GDP, 2016-18, year-wise.jpg|Changes in GDP, 2016-18, year-wise

Percentage change over Q1 of previous year, 2016-18, year-wise, sector-wise

Changes in GDP, 2016-18, year-wise; GDP growth at 3-yr low of 5.7% in Apr-June as GST, DeMon bite, The Times of India, September 1, 2017
Percentage change over Q1 of previous year, 2016-18, year-wise, sector-wise; GDP growth at 3-yr low of 5.7% in Apr-June as GST, DeMon bite , The Times of India, September 1, 2017

Jaitley Vows Measures To Boost Economy

The Indian economy lost steam in the AprilJune quarter, slowing to a three-year low as companies stalled production in June to prepare for the switch-over to the Goods & Services Tax (GST) regime. According to economists, lingering effects of demonetisation also contributed to the slowdown. Data released by the Central Statistics Office (CSO) showed the economy grew 5.7% in April-June, the first quarter of the cur rent fiscal, slower than the previous quarter's 6.1% and much lower than the 7.9% growth registered in the first quarter of 2016-17. Finance minister Arun Jaitley vowed to take steps to boost growth. India's April-June growth of 5.7% is below China's 6.9% expansion during the same period and puts pressure on policymakers to unveil measures to revive the economy .

“Slowdown is a matter of concern. In coming quarters we need to work more on policy and investment to improve the figures,“ he said. “Global economy is improving faster than what we thought and ...the domestic public investment is certainly going to be quite high because the revenue trend seems to be positive,“ Jaitley said. The slowdown was most steep in manufacturing, construction and mining sectors while most services post higher growth than last year. Higher growth was largely propelled by government spending.

Impact on inflation

The Hindu, November 12, 2016

Demonetisation could cut inflation, says Panagariya

The Centre’s demonetisation drive will help lower inflation, NITI Aayog vice chairman Arvind Panagariya said.

“All these makes me believe that their could be some moderation in inflation in the short-term,” Mr. Panagariya said at the Economic Editors’ Conference. “Yields on sovereign bonds softened after the government announced that the present Rs. 500 and Rs. 1,000 currency notes will not be a legal tender from November 9." He also said that eradication of black money from circulation will have some impact on money supply.

“As the black money goes out of the system, the money supply will shrink to some degree. This will reduce the inflation rate in the absence of any open market operations by the RBI,” Mr. Panagariya said.

Savings growth

Banks will see healthy growth in savings account deposits due to this exercise, he said.

“Savings that were kept in different forms particularly in the form of currency notes, they will now move into bank deposits. So we will see some surge in bank deposits,” Mr. Panagariya added.

Separately, Bibek Debroy, member of NITI Aayog dismissed that the demonetisation will have any impact on economic growth.

“Real estate prices were already impacted due to several measures that government had taken in the past,” Mr. Debroy said.

He said black money was never in the calculation of GDP figures, hence the present demonetisation drive will not impact growth.

Impact on industrial output, inflation

IIP rises to 5.7% despite notebandi Jan 13 2017 : The Times of India

Nov Growth Surprises Economists

Industrial output growth surprisingly rose to a 13-month high of 5.7% in November 2016 while retail inflation slowed to a 25month low in December led by a sharp decline in vegetable prices.

According to the data released by the Central Statis tics Office (CSO), industrial output grew an annual 5.7% in November 2016 compared to a decline of 3.4% in the year earlier period [2015]. The sector had declined 1.8% in October 2016. Growth in November 2016 was helped by the favourable base effect and the performance of manufacturing, capital goods and consumer durables sectors. Between April and November 2016, industrial output growth rose 0.4% compared to 3.8% expansion in the year ago period, reflecting the sluggishness still persisting in the sector.

Economists said it was too early to predict whether the November data had shrugged off the impact of demonetisation. “The positive IIP numbers have come as a surprise.Prima facie, it looks like the effect of demonetisation has been nullified by the huge negative base effect. However, this growth needs to be seen with caution, whether it is sustained in the coming months needs to be seen,“ Madan Sabnavis, chief economist at Care Ratings said.

The manufacturing sector rose 5.5% in November 2016 compared to a decline of 4.6% in November 2015 while mining rose an annual 3.9% compared to 1.7% in the year earlier period. The capital goods sector, which is seen as a key gauge of industrial activity, rose 15% in November compared to a decline of 24.4% in November 2015. The consumer durables sector rose 9.8% compared to a growth of 12.2%. The electricity sector grew 8.9% in November compared to 0.7% expansion in November 2015.

Separate data released by the CSO showed retail inflation slowed to a 25-month low of 3.4% in December. Inflation as measured by the consumer price index was 3.6% in November 2016. Food inflation slowed to 1.4% in December compared to 2% in the previous month, largely on the back of a 14.6% decline in vegetable prices and 1.6% contraction in prices of pulses. Sugar and confectionary remained a pressure point rising an annual 21% in December.

April 2016-September 2017/ Impact on industrial output

Impact of demonetisation of high value currency on consumer goods, capital goods, consumption services, basic industrial inputs and exports, April 2016- September 2017
From: Aarati Krishnan, November 19, 2017: The Hindu

Aarati Krishnan, November 19, 2017: The Hindu

Quarterly numbers suggest many sectors staged a comeback from demonetisation, facing only a minor hurdle in GST

Have demonetisation and the rocky transition to GST brought Indian businesses to a grinding halt? Ever since the CSO released its quick GDP estimates for the April-June 2017 quarter, pegging growth at 5.7%, there has been a heated debate on this. The debate has generated little light given that GDP estimates provide only broad-brush data on the economy.

For a micro picture on growth trends, we decided to turn to the quarterly results filed by listed companies, breaking them down into individual sectors. Over 1015 companies have filed their results for the last six quarters beginning April-June 2016 and ending July-September 2017. Studying their sales growth patterns threw up these findings.

Consumption revives

The note ban did deliver a body blow to consumer confidence, data from listed firms show. Almost every consumer-facing sector saw a sharp dip in sales for the October-December 2016 quarter — the months when the note ban was in force. But most sectors charted a quick recovery from that blow. Some have even seen growth rates return to levels better than a year earlier.

Aggregate sales growth for Fast Moving Consumer Goods (FMCG) companies slumped from 6.5% in July-September 2016 to 2.9% in the demonetisation quarter. Automobile sales shifted into first gear from 13.2% growth in July-September 2016 to 4.2% in the October-December quarter. Sales for retailers fell off a precipice from a 31% growth to a measly 1%. Consumer durable sales, already sluggish before demonetisation grew at just 3.5% in the note ban quarter.

But all these sectors staged an unexpectedly quick bounce-back from the note ban. FMCGs saw growth pick up to 9.6% in the January-March 2017 quarter itself. Consumer durables saw sales growth zooming to 13% in the quarter immediately following demonetisation, further accelerating to 20% and 16% in the subsequent quarters. Even paints, a discretionary purchase item, saw a doubling of growth in January-March 2017 from the note ban trough. The GST roll-out didn’t pose as much of a challenge for the listed firms. Consumer goods such as FMCG, apparel and automobiles saw a blip in April-June 2017, but were back on the fast track by July-September 2017. In fact, listed firms in FMCGs, paints, durables, apparel and automobiles have all demonstrated their strongest growth in the last two years in the latest July-September quarter.

Services lag goods

Consumer services, however, had a somewhat different story to tell. Revenue growth for telecom, entertainment, hospitality, and media took a sharp knock in the quarter in which demonetisation occurred.

Telecom services went from 7.1% growth in July-September 2016 to a 1.7% contraction in October-December 2016. Entertainment (multiplexes, cable TV providers) saw a halving of growth from 14% to 7% and media firms’ (newspapers, broadcasters, television channels) slowed sharply from 9.2% to 1.2%.

Growth in these sectors has continued to be anaemic through 2017, with the GST transition probably playing a role in subdued sales. Banks alone have seen a marginal uptick in revenue growth post demonetisation, understandable given their deposit windfall.

Why have consumer goods taken less of a hit from GST than consumer services? One explanation could lie in the GST tax structure. GST has reduced the indirect tax burden on most consumer goods, fitting them into lower rate slabs than before.

But it has raised effective taxes on services. Consumer goods firms have therefore been able to use the savings from GST to woo consumers back with discounts and lower selling prices. But service providers, who are already victims of intense competition (think mobile phones and hotel tariffs) in their sectors, haven’t had this luxury. The higher tax incidence in their case has probably dented demand.

In reading the above numbers, it is important to remember that growth rates cited here are a blend of volume and price growth. Commentary from most consumer goods firms suggest an improvement in volume growth in the latest quarter. In the case of services such as telecom or hotels, competition has lowered tariffs.

Capital goods — divided

If the consumer goods firms are signalling a clear revival in 2017 and a limited impact from the GST roll-out, how’s the investment leg of the economy faring? Not as well, show the numbers. Revenue numbers for turnkey infrastructure developers, construction firms and real estate developers were already shrinking in the quarter prior to the note ban (July-September 2016).

After the note ban, they staged a patchy recovery over the next two quarters to hit a growth patch by April-June 2017. But the latest July-September 2017 quarter has seen them back in the doldrums.

These firms seem to have received some order flows from the front-ended Government splurge on roads, railways, rural electrification and the Bharatnet this fiscal. But the flows have dried up lately as the Centre has tightened its purse strings. Private sector capital expenditure continues to remain at a low ebb.

However, not all capital goods makers struggled with poor order flows. While capital goods suppliers to industrial firms were buffeted by the investment slump, those that cater to consumer firms managed business-as-usual.

Auto components, cables and telecom equipment have seen a steady improvement in growth rates through the three quarters of 2017, ending the July-September quarter with growth of 14%, 33% and 14% respectively. These firms seem to have benefitted from the trickle-down effect of demand revival in their user industries.

The gloomy picture on capital expenditure sits oddly with the strong show from sectors such as steel, cement, mining, metals and refineries — suppliers of basic feedstock to industry. But this trend owes a great deal to the rising global prices of industrial commodities which has propped up realisations, amid middling volume growth.

Export-oriented sectors, after sailing through the note ban months, have had a rocky transition to GST. Jewellery, software and pharmaceuticals displayed dwindling growth in the first three quarters of 2017. Textiles and shipping shrank last year and managed a mild revival this year.

GST apart, sector-specific issues have also played villain to some export-oriented sectors.

For software services, the backlash against offshoring and changing business models have posed a challenge. For pharmaceutical exporters, pricing pressure on generics in the U.S. market and regulatory crackdowns have hit growth.

Overall, numbers from India Inc. suggest that, while the economy isn’t back to firing on all cylinders, the accelerating sectors outnumber the slowing ones.

Extrapolating sector-wise numbers to the economy as a whole should come with caveats. In India, only the largest and most established firms tend to list themselves in the public markets. Therefore, these numbers essentially capture the trends for the best and brightest of Indian businesses.

Given that the ‘formal sector’ is widely believed to have made marketshare gains at the expense of unorganised players and unincorporated entities due to the note ban and GST, it is likely that the latter fared much worse. But having said this, the 1,015 firms analysed here account for about 35% of GDP by value.

Impact on automobile sales

Feb 10, 2017: The Times of India

% change in sale of automobiles in Jan 2017 due to demonetisation of 2016; Feb 10, 2017: The Times of India

Two-wheeler sales continue to remain depressed due to cash crunch as demand for scooters and motorcycles fell even in the first month of the new year. Analysts say the two-wheeler industry will take some more time to recover from the demonetisation measure that has also impacted commercial vehicles and three-wheelers. Car and SUV sales, however, seem to have turned a corner, led by new models and attractive discounts and offers


15% dip in healthcare spends

Rupali Mukherjee, Note ban leads to 15% dip in healthcare spends, Jan 20, 2017: The Times of India

Demonetisation led to a drop of 10-15% in healthcare spend, with patients deferring elective surgical and medical procedure, while overall, the impact was more pronounced in small towns.

While retail sales of drugs witnessed a slight dip, the diagnostic services suffered a drop of around 15%. Private hospitals in major cities like Delhi and Mumbai were not impacted, as cashless payment channels including credit/debit cards/ e-banking and electronic payment platforms emerged, with no significant reduction being reported from their out-patient department.

Initially retail sales of prescription drugs had experienced a boost as older notes were still legal tender at pharmacies till November 24, but weeks later, the adverse effect of demonetisation led to a dip in the retail market.

In a sudden move, the government announced that existing currency notes of denominations Rs 500 and Rs 1,000 will cease to be legal tender from November 8, 2016. Over 70% of the country's healthcare spend is out of pocket, so the liquidity crisis certainly had an impact, industry experts say, adding the impact was more pronounced in November, while the situation was creeping back to normalcy over the following weeks.

Dr Ram Narain executive director, Kokilaben Dhirubhai Ambani Hospital said, "Our hospital has not seen any impact of demonetisation on our out-patient department. There has been no drop in surgeries, and all surgeries over the last month have been undertaken as planned. While this had certainly caused some inconvenience to patients initially, we helped them cope with the situation to ensure convenience of patients and their families during the transition".

Another major private hospital in Mumbai said that its credit card transactions jumped three times, post-demonetisation.

Overall for the home healthcare industry the demonetisation impact will be transitory depending on the service offerings of individual enterprises, Vishal Bali co-founder & chairman, Medwell Ventures said. "At Nightingales, in the chronic diseases care, part of our business continues to see growth. However, in elective procedures like physiotherapy, we do see consumers delaying their treatment. For the annual care plan subscribers in November and December, we have offered a quarterly pay option which eases their immediate outflow of expenses".

Dr Narendra Trivedi, CEO Apollo Hospitals Navi Mumbai, says the hospital has not seen any significant drop in surgeries and in some cases, patients have rescheduled their dates of the surgery. "In cases of emergency procedures, in patients interests, we had started accepting payments by cheque, net banking, debit, credit cards and also enabled payments from Android and iOS phones".


2017-18: domestic supply constraints make imports rise

DeMon may have led to reverse import substitution, effect ebbed as factory growth picked up, August 30, 2018: The Times of India

Import growth far exceeded industrial output growth during mid-2014 to late 2015 and again from mid-2016, analysis by the Reserve Bank of India has shown.

During 2017-18, there was a surge in imports, especially in the category of non-oil nongold items, which broke out of the traditional co-movement with export behavior but coincided with a period of sluggish manufacturing activity. This has given rise to concerns that disruptions in the production/ supply chain during post-demonetisation have forced domestic demand to spill over into imports in order to overcome domestic supply constraints.

This phenomenon of reverse import substitution could reduce GDP in India through leakages of domestic demand into external markets. The RBI wanted to undertook the analysis to probe the phenomenon of reverse import substitution.

It selected items common between the index of industrial production (IIP) and merchandise imports at the 4-digit level of the national industrial classification (NIC), 2008.

The RBI said import intensity of industrial raw materials used in manufacturing is influenced by domestic demand and cost conditions, whereas exchange rate depreciation plays a dampening role. The study also showed that the reverse import substitution effects was at best transient and ebbed gradually as industrial activity in India emerged out of its sluggish phase and regained its momentum.


Impact on weddings

Please see graphic, ‘Impact of demonetisation of November 2016 on weddings’

Impact of demonetisation in November 2016 on weddings; The Times of India, December 6, 2016

Weighing candidate with coins: Punjab

The Times of India, Jan 27, 2017

Demonetisation has taken a toll on an old election tradition in Amritsar that involves weighing a candidate with coins and donating the same amount as fund by supporters. Amritsar-based currency exchanger Vijay Kumar said the practice led to an “immense demand“ for coins in previous polls. “But, this year, we don't have coins and currency notes, and even demand from supporters is less,“ Vijay said. BJP worker Naresh Gupta, said a candidate would collect Rs 1 lakh a day from funds received through the tradition.

“It used to be fun watching a thin candidate lose out to a heavier one in terms of money collected. Besides demonetisation, fear of action by the Election Commission has also made candidates play it safe this time,“ said Gupta.

Nevertheless, this time the tradition is still on at some localities where they use sweets to weigh candidates instead.

Congress supporter Shiv Bansal said a candidate of average build weighed around 17,000 coins of Re 1. “It was more of a tradition, which has now lost the charm of polltime euphoria,“ he said. (The Times of India)

The pain

2016: The pain: a compendium

DEMONETISATION: WHERE IT'S HURTING Nov 18 2016 : The Times of India

Reasons of cash crunch in Indian economy, after demonetisation of high denomination currency on November 8, 2016; The Times of India, Dec 24, 2016

The demonetisation of 2016, the pain
The Times of India

Priyanka Kakodkar, Cash crunch forces worker exodus from Dharavi units, Dec 11 2016 : The Times of India


Demonetisation has affected the auto and taxi businesses in the two big metros. Auto drivers in Delhi say there's been a fall in riders and where earlier an autorickshaw driver may have earned Rs 500, he is now earning Rs 150-200 less.Many Delhiites are opting for cashless options like taxi aggregators. Mumbai's black and yellow cabs have been worst hit, but they hope to pick up business. These days they are getting fares even as low as Rs 50 as no one wants to use up Rs 100 bills. Mumbaikars are, however, avoiding autos for long journeys, affecting their business.


Usually, a film decides occupancy in cinema halls, but now it is the liquidity crisis. Shows in Rajasthan are being cancelled at smaller centres or running with negligible occupancy.

Ahmedabad theatres have seen a drop of around 60% in footfall with only 8-10 tickets sold for some shows. In Surat, window sales have dropped by 40% and several night shows have been cancelled.Some multiplexes in Mumbai were not able to accept debit or credit cards, disappointing many. However, play producers in Pune are now accepting cheques and extending credit so as to not to have to cancel shows.


Aditya Dev, Embassies protest against cash curbs, Dec 07 2016 : The Times of India

Russia Leads The Charge, Writes To MEA

[A month later a] small pile of letters and protests from [third world ] foreign missions in New Delhi [was] piling up with Union ministry of external affairs (MEA) as diplomats confronted the currency crunch post the government's demonetisation drive.

Russian ambassador Alexander Kadakin's letter threatening reciprocal action against Indian diplomats in Moscow found its way to the media. But similar letters have been sent to MEA by Hans Dannenberg Castellanos from the Dominican Republic, who is the current dean of the diplomatic corps posted in New Delhi, ambassadors of Ethiopia, Sri Lanka and Pakistan.

With the Russians leading the charge, Kadakin's complaint has reportedly been forwarded to the PMO for an immediate decision. The government, already overwhelmed by the complexities of the rollout of the plan, has not yet focused on the foreign missions.The latter are asking for an increased ceiling for withdrawals, a dedicated window in bank branches to deal with their cash demands, and removal of cash curbs for for eign visitors on short visits.

In his letter, Kadakin said the limit set by the government is “not even enough to pay for a decent dinner“ and inadequate for everyday running of the mission. “How can such a big embassy in Delhi function without cash?“ he said in his letter. The Russian embassy has around 200 people living and working here.

Various media reports have cited different number of deaths due to the demonetization drive, with causes ranging from hearing about the news on TV to bank staff dying while disbursing cash. While The Times of India has reported these deaths as and when these have occurred, the following is a list of people who died while standing in queues. By this measure, the number of people who've lost their lives stands at 21 until November 17 (source: Huffington Post)
The Times of India


Fish, the Bengali staple, is falling off menus in the state. The entire chain from fishermen to wholesalers to retailers has been disrupted, with fish rotting in trawlers.In Gujarat, there are fears that trawlers won't be able to go out to sea after November 24, raising prices.

Mumbaikars, it seems, are giving up fish as the markets are empty while in Guwahati sales have fallen by 50%.Meat is the same story.While trade in MP has been reduced by 35-40%, in Ahmedabad prices have skyrocketed on short supply, and in Pune meat sellers are not able to pay for stock nor are they getting customers.

FOOD: vegetables and grain


Vegetable prices are dropping steeply, in some cases by half, because people don't have cash to buy groceries, retailers can't provide change and farmers can't hold back their produce because it would rot. Wholesale markets for vegetables and grains have received a body blow that has paralysed the supply chain. Some retailers have offered groceries on credit while some farmers have actually given away their produce free. Grain mandis in some states were shut the first few days after demonetization was announced. Many farmers refuse cheques because their accounts are linked to loans for fertilisers and seeds and they fear an automatic adjustment against their earnings.

FMCG industry

Demonetisation's immediate impact on FMCG sales

Demonetisation hit the FMCG industry hard. Data from market researcher Nielsen shows sales of the industry have gone down by 1-1.5% or Rs 3,840 crore in November, compared to October. “While 1­1.5% net impact of demonetisation does not look huge, considering the size of the FMCG industry at Rs 2.56 lakh crore, this is a large drop in terms of absolute value,“ said Nielsen. (Dec 24 2016 : The Times of India)


Demonetisation is spawning a medical crisis with surgeries postponed and patients turned away. One major hospital estimates that only eight to 10 surgeries are being performed per day against an earlier average of 35 to 40. At smaller hospitals, patients have been refused treatment. Though the really big hospitals accept payment through other modes, cash is preferred at smaller clinics.Pharmacists, meanwhile, are reporting dips in business of over 70%. They accept discontinued banknotes but are unable to return the change because of the severe cash crunch.

Meanwhile, reports from MP say many government hospitals don't even have pharmacies on the premises.



`Tourists down to half at Taj in peak season'

Following come demonetisation, the number of domestic tourists coming to Agra has down to half. According to ASI, which manages sale of tickets at marble monument, the average sale of tickets in the first week of November was 25,000 per day, which has come down to just about 12,000. Besides, budget hotels in the city, most of which do not have swipe machines, have been the worst hit, with only 20% occupancy during the peak tourist season. TNN


The business of street vendors has taken a hit across the country. In Bihar, cobblers, plumbers and construction workers are not getting work. Vendors in MP had to close their shops on several occasions, and sales have gone down by 40%. A parantha-seller in Rajasthan, where business is down by 60%, says he hasn't managed to scrape together even in five days what he could earlier earn in just one day. Train and street vendors in Mumbai say they don't even bargain anymore, they just take whatever the customers give so that they don't go hungry.


Nearly 40% of individual tours in Maharashtra have been cancelled. Tour groups visiting different parts of India are finding their high-value notes of no use or are being charged extra.Tourists are shopping less.Rajasthan's handicrafts have seen sales drop by 70-80%.With Xmas near, what is generally a busy time for handicraft sellers is proving immensely lacklustre.


The Guwahati Baptist Church is accepting demonetised Rs 500 and Rs 1,000 bank notes from those who come to buy coffins from its coffin supply centre. The church has also made it a point to provide free coffins to those who cannot afford it

These are rough estimates of the transitory pains of demonetisation reported by TOI bureaus. Exact impact could vary substantially from place to place



90% Leather And Garment Factories Shut

Tailors. Of the 15 who used to toil in this garment factory , only four remain. The rest are back in their village in Uttar Pradesh's Amethi.

The migrant tailors here were hit by twin convulsions -note-bandi and the collapse of the wedding season.

There are at least 5,000 leather units and 4,000 garment factories, according to local manufacturers. In the month [following demonetisation], 80-90% of these cottage industries have shut down, they estimate.

Migrants from UP, Bihar, Bengal and Karnataka live and work here for several months of the year. Clothes from the garment factories are supplied to wholesale markets in Mumbai and other states.The leather units make jackets, bags, wallets and belts.

Many take bulk orders for corporate gifts and even do back-room work for designer brands.

Manufacturers say consumer demand has plummeted.And with the continuing cash crunch, there is no money for transactions or wages. Most of the migrants have no bank accounts and rely entirely on cash payments.

“My factory would make 3,000 garments a day and had a turnover of Rs 1-2 lakh per day. Today it is locked, like 90% of the units,“ says Haji Babbu Khan from Tan-Man Dresses, one of the biggest garment manufacturers in Dharavi. Only two of Haji Khan's 40 workers remain in the city now. Most workers in the garment trade earn between Rs 8,000 to Rs 15,000 a month, depending on skill and speed.

Abdulais Shaikh from Sana Leather Works, is one of the largest leather manufacturers and exporters in Dharavi, with an annual turnover of Rs 1.5 crore. “Business is down 95%. We have received no orders for corporate gifts in the last month,“ he says. During the winter season, his factories would make 1,000 leather jackets. This season, they are making just 100.

Manufacturers like him are allowed to withdraw Rs 50,000 a week.In reality, his bank only doles out Rs 4,000. Outside his door is a new sign to entice customers: they can pay by Paytm. “I put this up 15 days ago, but no one is in the mood to spend,“ he says.

Workers from Bihar's Sheohar district make leather jackets. Since the note-ban, their earnings have fallen from Rs 500 to Rs 300 per day. None of them has been able to send money home.


It's not all bad news for everyone. There's a gold rush in Madhya Pradesh where jewellers are believed to have done a year's business in the first three days of demonetization.Gold worth Rs 100 crore was traded in the state on November 9 and 10. The income-tax department has launched a series of raids on jewellers in Bhopal, Indore, Jabalpur and Satna, among other cities.

USURY/ private moneylending

Demonetisation seems to have helped private moneylenders in Maharashtra. Of the Rs 13,558 crore of loans required for the rabi season, banks could disburse only about Rs 2,400 crore (18%), due to shortage of cash. Besides, there are restrictions on district cooperative banks (DCCBs).

Officials said the crisis gave moneylenders an opportunity to get rid of defunct notes as loans were disbursed in old notes and they will be paid back in new notes. The rate of interest levied by moneylen ders ranges from 24% to 120% per annum as against the 915% charged by banks.

Of the amount disbursed, Rs 857 crore was from DCCBs and the rest from commercial and private banks. Sowing has been 120% of last year, and on 92% of the av erage area available for the rabi crop, which prompted in creased borrowings.

The state government had allowed farmers to buy seeds and fertilisers using Rs 500 and Rs 1,000 notes, which helped moneylenders even more. “The area under rabi cultivation has gone up despite the small amount of bank loans being disbursed.This has meant that funds have been provided from sources outside the formal banking sector,“ said an official from the cooperatives department.

Demonetisation was announced around the time sowing had just picked up in Maharashtra. The receding monsoon was very good in the state--a favourable condition for the rabi crop.

“With weather and soil water content just right for a good produce, farmers couldn't give up on the season due to a lack of bank loans, and so they resorted to borrowing from moneylenders,“ said farmers' leader and activist Vijay Jawandhia. (Bhavika Jain, Usurers cash in as bank loans to farmers dry up, Jan 02 2017 The Times of India)

Real estate

Prices drop by 5-10%

Dipak Dash, Note ban helped bring down realty prices by 5-10%: Housing ministry, November 9, 2017: The Times of India

Post-demonetisation the real estate sector saw a drop in prices by up to 510%, according to data shared by the housing and urban affairs ministry . In fact, there could be further price correction and the ministry is optimistic most of the nonserious and fly-by-night players will vanish soon, housing and urban affairs minister Hardeep Singh Puri said.

Claiming demonetisation had the maximum positive impact on the real estate sector, Puri said this had been one of the main hub of parking black money.“There has been some correction in prices and the ultimate beneficiaries are the end buyers,“ Puri told.

Added to the drop of 5 10% in property prices, many developers offered freebies during the past one year in the range of 5-7%. Together, effectively the discount correction is expected to be up to 15%, the ministry said.

The data also show that the average resale price of properties witnessed a dip of 10-15% immediately after demonetisation. However, price correction has happened in the past couple of months in the case of readyto-move in properties.

Similarly, new launches of projects since January has been less across top 10 cities including Noida, Pune, Mumbai, Chennai, Hyderabad, Bengaluru and Ahmedabad.Only exception has been Gurgaon which has witnessed 72% increase in new launchs on year on year basis in the case of affordable housing segment under the state government scheme, the ministry data said. Puri said the implementa tion of Real Estate Regulation Act (Rera), transparency in the sector and impact of demonetisation will bring a new phase where the ongoing projects will get completed.“Some states have messed up the issue of ongoing projects.But we are trying hard to push the case of genuine buyers,“ the minister said.

“All the initiatives we have taken will have their impact. Many of the projects will get completed by the builders or by some other entities,“ Puri said.

Reserve Bank of India

2017: RBI halves dividend

See The Reserve Bank of India> Dividends> 2017: Demonetisation, printing of currency: RBI halves dividend

Tax collection

Demonetisation of Rs 500 and Rs 1000 notes and its impact on the Indian taxation structure; Graphic courtesy: The Times of India, December 8, 2016

2014-18: an increase

April 28, 2019: The Times of India

Direct tax collection, 2014-18
From: April 28, 2019: The Times of India

‘Direct tax collection up since DeMon’

Formalisation Of Economy, Widening Of Tax Net Positives Of Note Ban: Data

New Delhi:

Significant rise in direct net tax collections in the year of demonetisation and after, exceptional growth in revenue from advance and self-assessment tax under personal income tax and steady increase in new income tax filers point to positive impact of note ban, official sources said.

Even as a political battle rages over demonetisation announced by PM Modi on November 8, 2016, government data show trends of formalisation of the economy and a widening of the tax net, suggesting positives despite the initial shock to the financial system.

The revenue growth trends continued in the 2018-19 fiscal, more than two years after demonetisation, with corporate income tax growing at 14% and personal income tax at 13%. Voluntary tax payments under advance tax are also growing at a healthy rate of 14% which, if seen along with increasing digitalisation, points to a cleaner economic system, said sources.

Apart from large cash deposits, there was a significant increase in accounts operated by persons such as domestic workers, artisans and casual labour. As they deposited old currency in banks, their cash became safer than it was when it was stored in tin boxes and under mattresses.

Growth trends in the number of income tax returns filed have not slackened and a little over a crore of new filers were added till February this year. The demonetisation year of 2016-17 saw a 29% growth of new income tax filers, accelerating a trend since 2015-16. “A clear upswing in new tax filers can be attributed to higher compliance due to transfer of cash into formal channels as a result of demonetisation,” said a source.

The data underlines enforcement actions against black money in the context of demonetisation, with Rs 900 crore seized between November, 2016 to March, 2017. The increase in revenues and returns is seen to have nudged individuals and businesses to adopt more transparent means.

“18 lakh cases were identified where cash deposits were not in sync with the returns filed or those who had not filed their returns. Intensive emails and SMSes were sent to them with the result that tax collections have become better,” said the source.

Govt gets Rs 6000 cr as tax

Govt gets Rs 6k cr as tax from stashed cash, March 18, 2017: The Times of India

The Centre has netted around Rs 6,000 crore as tax on unexplained cash deposits after demonetisation so far and the amount could go up, vice-chairman of the SIT on black money Justice Arijit Pasayat said. He said in the first phase of the postdemonetisation drive against black money , the focus was on cash deposits of Rs 50 lakh or more, reports Dhananjay Mahapatra.

91 lakh people added to tax net

91 lakh added to tax net after note ban, May 17, 2017: The Times of India

After an initial surge in Jan Dhan accounts in November 2016, tax compliance (and requests for PAN) grew several-fold
From: The Times of India, November 6, 2017

The income tax department has identified at least one lakh “high-risk individuals“ with more than Rs 1.72 lakh crore deposits in their bank accounts and the tax authorities will soon take action under the second phase of “Operation Clean Money“ launched by finance minister Arun Jaitley.

The FM said more than 91 lakh people have been added to the tax net as a result of the action taken by the I-T department on tax evaders after demonetisation. Jaitley also unveiled a website for “Operation Clean Money“, which will contain data and information gathered during the demonetisation drive.

“It is the time of recko ning for those who evade tax.We want to change the habit from non-tax compliant to tax compliant,“ Jaitley said. The FM assured that honest taxpayers have nothing to fear. During the first phase of the I-T operation, search and survey operations had yielded more than Rs 16,000 crore in unaccounted money and assets worth about Rs 900 crore were seized.

Jaitley said demonetisation has helped faster digitisation and “people have realized the risk of dealing in excessive cash“. The daily demand for PAN has gone up from one lakh a day to over 2-3 lakh. The department has so far issued over 30 crore PAN cards and is looking at making a significant addition to the tax base in the next two years.

CBDT chairman Sushil Chandra said between January and April, the department had identified over 18 lakh people whose the bank deposits were not in line with their tax returns or identified sources of income. Subsequent investigation has helped in a 22% growth in e-filed returns.

He said the department has given enough opportunity to people in the high-risk category to come clean. However, now the department will launch operations against those who have failed to avail of the repeated chances given through text messages and emails.

The department has identified 7.5 lakh medium-risk individuals who would be given more time to declare their income and file returns, he said. “High-risk individuals“ are those who had made unexplained deposits of over Rs 25 lakh in accounts post demonetisation. Such deposits have been estimated at over Rs 1.72 lakh crore, Chandra said.

Income tax returns grow 25%

Demonetisation effect: ITR filings for 2016-17 grow 25% to 2.82 crore, Aug 7, 2017: The Times of India


The number of I-T returns filed for 2016-17 year grew by 25 per cent to 2.82 crore

An official statement has stated this as "a result of demonetisation and Operation Clean Money"

August 5 was the last date for filing I-T returns

NEW DELHI: The number of I-T returns filed for 2016-17 year grew by 25 per cent to 2.82 crore, as increased number of individuals filed their tax returns post demonetisation, the tax department said on Monday.

The growth in ITRs filed by individuals is 25.3 per cent with over 2.79 crore returns having been received up to August 5 as against over 2.22 crore returns filed in the corresponding period last fiscal.

"As a result of demonetisation and Operation Clean Money, there is a substantial increase in the number of Income Tax Returns (ITRs) filed," an official statement said. The total number of returns filed as on August 5 stands at over 2.82 crore as against over 2.26 crore filed during the corresponding period of 2016-17. This was an increase of 24.7 per cent compared to growth rate of 9.9 per cent in the previous year.

The last date for filing of income tax returns by individuals and HUFs (Hindu Undivided Family), who need not get their accounts audited, was August 5.

The finance ministry said that the number of ITRs filed showed that substantial number of new tax payers have been brought into the tax net subsequent to demonetisation. The effect of demonetisation is also clearly visible in the growth in direct tax collections, it said.

Advance tax collections of personal income tax (other than Corporate Tax) as on August 5 showed a growth of about 41.79 per cent over the corresponding period in 2016-17. Personal Income Tax under Self Assessment Tax (SAT) grew at 34.25 per cent over the corresponding period in 2016-17.

"The above figures amply demonstrate the positive results of the government's commitment to fight the menace of black money," it added.

The Central Board of Direct Taxes (CBDT), which is the apex policy making body of the I-T department, is committed in its resolve to eradicate tax evasion in a non-intrusive manner and widening of tax base. To fight the menace of black money, the government had on November 8, 2016, demonetised old 500 and 1000 rupee notes and asked holders of such notes to deposit in bank accounts.

The I-T department had then launched operation clean money to clamp down on unaccounted money funneled into bank accounts post demonetisation

Tax collection by civic bodies, state-wise

Municipal tax collection zooms all over India; in Surat by 1,400%

Municipal tax collection in November 2015 and 2016: the impact of demonetisation

Dipak Dash, Rush To Dump Cash Spells Jackpot For Civic Bodies, Nov 23 2016 : The Times of India

47 Agencies Mop Up Rs 13.2k Crore

The Centre's demonetisation decision has led to a windfall for 47 municipalities, pushing up their total tax revenue for this month to over two and a half times the sum collected in November last year.

According to the Union urban development ministry's estimates, by the 14th day of demonetisation , the municipal tax collection for the 47 civic bodies had reached Rs 13,192 crore. In the previous November [2015], the municipalities had collected just Rs 3,607 crore. Mumbai has the maximum share of the increased tax collection at Rs 11,913 crore, which is 90% of the total revenue. This is over three times Mumbai's collection for 2015. However, Hyde rabad accounts for the maximum increase -26 times the tax collection in November 2015. Surat's tax revenue of Rs 100 crore marked a nearly 14-fold increase (see graphic).

Sharing the details, Union urban development minister M Venkaiah Naidu said this was one kind of change that had happened as a result of the decision to demonetise the old Rs 500 and Rs 1,000 notes. He said the government's move had forced defaulters to deposit their dues.There have been reports of people queuing up with old notes to pay their dues.

Haryana, Telangana, Maharashtra, Gujarat, Chhattisgarh: increase in property tax

The Times of India, Dec 19 2016

Note ban nets a windfall for civic bodies

Dipak Dash

Municipalities in Haryana recorded maximum increase (over five times) in collection of property tax and other user charges in November, following demonetisation of Rs 500 and Rs 1,000 notes, as compared to the amount they collected during the same month in 2015.

Municipal bodies in Telangana, Maharashtra, Gujarat and Chhattisgarh recorded a spurt in such income, according an analysis of revenue rise across 450 municipalities in India. Chandigarh, Goa and Himachal Pradesh saw a slight dip in collection.

These municipalities are covered under the Atal Mission for Rejuvenation and Urban Transformation (AMRUT).

According to data, Narkatiaganj municipal body in Bihar recorded the highest increase by 101 times, though the amount collected was negligible. Gudur municipalty in Andhra registered the second highest increase by 40 times.

The data showed that while overall tax collection and other user charges across these municipal bodies was Rs 1,034.5 crore during November 2015, it rose to Rs 3,555.7 crore last month, registering nearly 2.5 times increase. The spurt in such revenue was primarily because of the government's decision to allow Rs 500 and Rs 1,000 notes for making payments to municipal bodies.

Last month, the urban development ministry had said the total revenue of 47 select civic bodies had reached Rs 13,192 crore against a collection of just Rs 3,607 crore a year back.

“That figure included all types of revenue collected by the selected municipal bodies including non-tax revenue.But in the case of these 450 cities, we have taken collection of only property tax and other user charges such as water bill and sewage charges,“ an official of the urban development ministry said.

He added that the analysis of data from these 450 municipalities shows how almost every municipal body saw increase in collection of property tax.

Delhi: negative growth in revenue collection

Ambika Pandit, DeMon effect: Tax collection dips, Feb 21, 2017: The Times of India

The final word is out on the impact of demonetisation on Delhi's revenue generation from VAT. While the total tax collections till January stand at Rs 17,708 crore in the current fiscal as against Rs 16,668 crore for the same period in 2015-16, the assessment for the period between December and January this year has revealed a dismal scenario.

In December, the revenue collection for the first time witnessed a negative growth of almost minus 4% over the same period in 2015 while in January, there was only a marginal recovery with a dismal growth rate of 1.72% over January 2015. The average growth rate before demonetisation was announced in November was between 8% and 10%.

The VAT department's hopes now rest on the February collections which appear to be picking up.

The revenue target for 201617 from VAT has been pitched at Rs 22,000 crore. The government has just eight days of February and the month of March left to make up for the decline in growth rate. Also, the global decline in the construction sector, iron and steel continues to hold sway and has adversely impacted VAT collections since last year.

After a robust VAT collection of Rs 2,023 core in November 2016, which was 15.59% hig her than the same period the previous year and more than the monthly average of 8% to 10% witnessed in 2016 over 2015, December recorded a ne gative growth in VAT for the first time in the current fiscal.In December, VAT collections were Rs 1,687 crore, 4% less than Rs 1,757 crore earned in 2016. This was clearly a setback for the state government.

The increase in November had been attributed to more tax being paid between October 21 and November 21. Since Diwali was on October 30, preDiwali sales had also got reflected in the November tax cycle. Also, since most traders deposit VAT in the last days of the monthly cycle, tax was paid after demonetisation kicked in. The spike is also being attributed to the fact that traders paid tax after demonetisation by showing pre-dated sales.

It was after this that the impact of demonetisation started showing as a reduced cash flow meant a massive decline in cash-based transactions on which tax is levied. Also the reduced cash flow impacted the manufacturing and trade sectors too as a lot of transactions there too were largely cash-based and declined. December reflected the adverse impact at its peak when a negative growth was recorded.

Tax evaders

1,200 tax evaders seek mercy

Post-DeMon, 1,200 tax evaders seek mercy from I-T dept, March 15, 2017: The Times of India

Taxmen Noose Tightens Against 570

The income tax department has stepped up its drive to launch criminal prosecution against alleged offenders by initiating 570 cases, which is three times higher than last year's. This has also put pressure on other evaders, resulting in at least 1,200 applications from accused seeking mercy under compounding of offences rules with several of them approaching authorities post-demonetisation.

A senior income tax (I-T) official said the department has filed as many as 570 prosecution cases in the last one year (till January 2017) against alleged offenders caught laundering money and evading taxes, compared to 196 cases fi led in different courts across the country in the previous financial year (2015-16).

Under I-T laws, a court conviction for tax offences can lead to imprisonment of up to seven years in addition to fine and interest and penalty on the tax evaded. The department has been taking up cases of money laundering seriously and has asked officials to file prosecution complaints against entities who refuse to own up their money despite enough evidences based on banking data obtained on deposits made after demonetisation.

The department is hopeful of filing more cases as the post-demonetisation data obtained from banks are still be ing analysed. In the Karnataka and Goa region, the tax department had recently issued over 850 prosecution notices to firms in the private and government domain on charges of delay in remitting TDS funds to the exchequer. In some high profile cases, the department has also launched prosecution against politicians. One such case is that of an MLA from Telengana where unaccounted income is to the tune of Rs 500 crore.

In a number of cases, the accused in black money cases have opted to surrender their unaccounted income under the Pradhan Mantri Garib Kalyan Yojna (PMGKY) available till March 31.

See also

Political parties' funding and finances: India

Currency: India

Currency: The Indian dollar

Demonetisation of high value currency- 2016: India

Demonetisation of high value currency- 1946, 1978: India

Foreign currency inflows: India

Sensex <> The stock market: India <> Mutual Funds: India <> Gold in the Indian economy

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