How Successful was Demonetisation? Four Takeaways From the RBI’s Annual Report

Demonetisation Flawed in planning not in principle

These estimates, it has not become clear, were wild guesses: the RBI has indicated that 99.3% of the demonetised currency or roughly Rs 15.31 lakh crore was returned.

The "humungous task of processing and verification of specified bank notes (SBNs) was successfully achieved", it said. The SBNs received were verified, counted and processed in the sophisticated high speed CVPS (currency verification and processing system) for accuracy and genuineness, and shredded and briquetted in the shredding and briquetting system, it said.

Post demonetisation, new currency of Rs 500 notes was pumped more into the system over the last one year.

"The total SBNs returned from circulation is Rs 15,310.73 billion", the RBI said in its report. An amount of Rs 107 billion has not yet been received by the RBI after the cash ban, the report said. Remember who had said that Rs 3 lakh crore will not come back and that will be a gain for the government?

"I suspect that the bulk of the Rs 13,000 crore is currency in Nepal and Bhutan and some that was lost or destroyed".

Now, even if 100% of demonetised currency returned to the system, it does not mean all of this cash was "white" or money that was generated through wholly legal means.

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"... India's currency to GDP ratio moved up to 10.9 per cent in 2017- 18, returning to being amongst the highest levels of currency usage in peer emerging market economies (EMEs) and advanced economies (AEs) as well".

In a series of tweets, the former finance minister also said RBI figure has suggested that the government had actually demonetised only Rs 13,000 crore and the "country paid a huge price" for it.

The BJP today accused the Congress of "misleading" the country on the issue of demonetisation, claiming that the exercise led to depositing of black money in banks, increase in income tax collection, crackdown on shell companies and a boost in digital payment.

"That alone was a loss of Rs 2.25 lakh crore a year", he said. The number of counterfeit notes of the redesigned Rs 500 and the new Rs 2,000 increased almost 50 times and 28 times, respectively, in the last fiscal compared to the previous financial year.

The RBI, in its previous annual report released, in August 2017 had stated that Rs 15.28 lakh crore, or 99 per cent of the demonetised currencies totally worth Rs 15.44 lakh crore, had returned to the banks by 30 June 2017.

"Compared to the previous year, there was an increase of 35 per cent in counterfeit notes detected in the denomination of Rs 100, while there was a noticeable increase of 154.3 per cent in counterfeit notes detected in the denomination of Rs 50", RBI said adding that counterfeit notes detected in the new Rs 500 and Rs 2,000 notes during 2017-18 were 9,892 and 17,929 as against 199 and 638, respectively, during the previous year.

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