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Was Demonetisation a Complete Failure? RBI releases its Annual Report

Was Demonetisation a Complete Failure? RBI releases its Annual Report
Prime Minister Narendra Modi had announced his decision of scrapping of Rs 500 and Rs 1000 notes last year on November 8, 2016. Around 86 % currency in circulation was demonetised. With the decision, the Central Government had targeted to weed out black money from the economy.

Currency worth Rs 15.44 Lakh crore was invalidated and it was expected that Rs 3 lakh crore won’t return to the banking sector as the Government presumed it to be black money. The amount which won’t return would have been a windfall profit for the Government and had not the money returned, the Government could have successfully eliminated  Rs 3 Lakh crore of Black money in a single stroke. The success of Demonetisation was solely depended upon how much currency is returning to the banks. But as now RBI has published data regarding Demonetisation in its annual report, it has raised a big question on Whether Demonetisation was a success or was it a blunder by the Government.
Reserve Bank of India (RBI) released its annual report on Wednesday and according to it around 98.6% of the invalidated Rs 500 and Rs 1000 currency had returned to the banking sector. The data provided by RBI has sparked a debate about Demonetisation.  The government had expected that around 20 % of the currency won’t return to the formal banking sector but 98.6% invalidated currency found its way to the formal sector. According to estimates of Government, it had calculated Rs 3 Lakh crore to be unaccounted or Black money and Demonetisation was targeted to eliminate that black money from the market but all that money returned to the banking sector. It is very certain from the data that tax evaders had managed to legalise their black money by using proxy accounts, making high-value purchases and most importantly colluding with the Bank officials to exchange their old currency.
Image Source-Linkedln
There were multiple petitions filed in the Supreme Court during Demonetisation and during one of the hearing Attorney General Mukul Rohtagi while defending the move had said to the Court that Rs 4-5 Lakh crore will probably not return to the system. He even said in the Court that those Rs 4-5 Lakh crore were being used in Jammu and Kashmir and in the Northeastern states to create unrest in the country.
Demonetisation was basically targeted at eliminating Black money from the economy, crack down on Counterfeiting of Currency, curbing terror finance and increase the tax base. In the year 2016 RBI had detected 632,926 fake notes while in the current year RBI detected a total of 762,072 fake currencies.  However, according to Finance Ministry, the total currency in circulation has come down from Rs 17.77 trillion in November 2016 to Rs 14.75 trillion on August 4.
After the report was published by RBI, opposition parties were quick to target Narendra Modi Government and Reserve Bank of India. Former Finance Minister P. Chidambaram tweed “Shame on RBI which recommended  Demonetisation, RBI Gained Rs 16000 Cr out of Demonetised notes but lost Rs 21000 crore in Printing new notes “.
Rs 16000 cr out of demonetised notes of Rs 1544,000 cr did not come back to RBI. That is 1%. Shame on RBI which 'recommended' demonetisation
RBI 'gained' Rs 16000 crore, but 'lost' Rs 21000 crore in printing new notes! The economists deserve Nobel Prize.
Similarly, Sitaram Yechury of Communist Party of India tweeted a pic with a caption “With no Comments, #Demonetisation Disaster “. It is to be noted that Prime Minister had himself said he was ready to accept any punishment if Demonetisation fails and so opposition parties are leaving no opportunity to criticise him.

However, Finance Ministry has said post-Demonetisation digital transactions have increased by 56% between the period of October 2016 and May 2017. It has also resulted in an increase in the number of income tax returns being filed. According to the ministry, there was an increase of 24.5% in income tax returns filing till 5 August. Finance Minister Arun Jaitley said that measuring the success of Demonetisation on how much cash has returned to the system is an inadequate measure.

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