Mittal Sourabh

“Jab Irada Bana !iya, Unchi Uddan ka, Fir Dekhna Fizu! hain, kad aasman ka”

As one of the biggest decision in the history of Independent India, Prime Minister Mr. Narendra Modi marks the evening of 8th November 2016 with his surgical strike on black money through announcement of ceasing the Currency Notes of 500 rupees and 1000 rupees with a vision of putting a check on the huge amount of Black Money which is held by black money holders in the form of big denomination currency notes. Unlike the general thinking, demonetization is not something new to the Indian economy, the country had gone through the phases of demonetization twice earlier in the year 1946 in pre-independence scenario and in 1978 by the then ruling Janta Party.

The 2014 general election came with huge expectation from the former Gujarat CM Mr. Narendra Modi after he conquers in the state election for the third time, when the people of the country voted for growth and development and Bhartiya Janta Party emerged as the highest voted with no other party getting qualified as the opposition.

Famous for the dedication towards work and his long-term vision, Mr.Modi immediately after being elected started his working towards better foreign trade policies and alongwith working on the other election promises made which includes curbing the black money and controlling corruption which were one of the strongest grounds for his general election win. Until the announcement of demonetization the government had came out with several policies and decision with macro level impact which includes the idea of Make in India, nationwide clean drive in the form of Swachh Bharat Abhiyan, replacement of the so-called planning commission with the introduction of NITI Aayog, enabling the reach of banks to the rural population through Jan Dhan Yojana. Besides these initiatives the government also worked towards the transformation of the country into Digital India and encouraging entrepreneurship in the youth generation in the form of Startup India.

In one way or other the initiatives mentioned above may or may not be linked with the topic under discussion but the series of events somehow relates the whole scenario. Though the reason behind the governments move for demonetization was defined by the prime minister as to curb the black money though reports did not agree with the same. Central Board of Direct Taxes in the year 2012, had recommended against demonetisation, saying in a report that “demonetisation may not be a solution for tackling black money or economy, which is largely held in the form of Benami properties, bullion and jewellery”. According to data from income tax probes, black money holders keep only 6% or less of their ill-gotten wealth as cash, hence targeting this cash may not be a successful strategy.

Though no accurate figures are available for the amount of Black Money in the country still different figures came out in the public in general announced by different peoples of the society and their different sources.

Based on the government data, total notes in circulation just before the date of announcement of demonetization was 17.77 Trillion Rupees as compared to 16.42 trillion Rupees as per the Reserve Bank of India Annual Report of 31st March 2016 out of which 86% i.e., 14.18 Trillion Rupees (14.18 Lakh Crores) of the currency in circulation is in the form of 500 Rupees notes and 1000 Rupees notes.

The report further provides that in volume 24% of the total notes in circulation are denominated in 500 and 1000. As per the RBI’s last announcement on December 10, figures of deposition of old currency notes with the banks for which a period 50 days were given by the government remains quite shocking with 12.40 Trillion (12.40 Lakh Crores) already getting deposited with the bank with still a period of 20 days to go somewhere putting a question mark on the success of the demonetization move.

It may not be right to judge whether the decision was correct or not or whether it was planned or unplanned but the 125 Crore population of the country has gone through a severe period of hardship in the last 50 days which is as of now, causing no problems for the actual culprits. Even after a period of one and half month from the date of demonetization, the new currency is not there in circulation with the public in general though the RBI in its recent statements had stated that almost 8 Trillion Rupees in new currency notes have been issued post demonetization. Since 8th November 2016, people throughout the country had either faced long queues outside the Banks and ATMs or Banks and ATMs going out of cash. Throughout the country demonetization affected people leading to various problems whether it is the case of a family function like marriages, or in rural and urban areas where economic activity is totally based on cash, throughout the country people found themselves cashless for the purchase of agricultural inputs and no market for their ultimate produce. Even the big corporate industrial houses like Tata Steels admitted that the sector has been hit by the Demonetization inversely though they expect some positive vibes in the long term. Also, the Indian security market hit badly after the combined announcement of demonetization and US election. As of my personal opinion, it is only the PM Modi’s personal image and the faith of the peoples of the country in his decision otherwise the efforts of the opposition and other factors of the country might have created massive nationwide uproar towards this move.

The complete scheme looks little bit unplanned by the simultaneous notifications and announcements made by Reserve Bank of India which is generally not expected from the Central Bank of any country. The footsteps of the scheme somewhere correlated to the ouster of former RBI governor two months before this announcement and introduction of the new governor as Mr. Urjit Patel.

The people of country welcomed the move towards demonetization and must be having a thought of “Soch ko badalo

“Sitare Badal Jayenge

Nazar ko badalo, Nazare Badal Jayenge

Kashtiyan badalne ki jarurat nahi

Dishao ko badalo, kinaare badal Jayenge”

still, the post demonetization facts and circumstances may not agree on this thought. It was claimed that only three people were aware of the announcement of demonetization which includes the prime minister himself, finance minister and the RBI Governor though in the early post demonetization scenario various prior leakage of information related facts came into notice which includes prior publishing of related information in a Gujarati newspaper, Dainik Jagran. The initial uproar by the opposition and the peace afterwards also puts a question mark whether or not demonetization any impact on corruption or it was just a scheme ultimately created hurdles for the public in general.

The scheme had received mixed reviews with supports from various peoples including bankers like Arundhati Bhattacharya and Chanda Kochar, and international organisation like IMF and criticism from Indian Supreme Court and various economist.

The post demonetization scenario has also seen simultaneous Income Tax Raids and Cash seizures throughout the country. The departments of the Government succeeded to defuse the planning made by various people to get the money converted into white without getting eyed by the Income Tax Department through commission agent though the amount involved in these raids and seizures are relatively very low.

Soon after getting the signs of the scheme getting unsuccessful the Government turned the whole story towards Digitization and India to emerge as Digital India with Smartphone as the biggest player and various banks creating their own digital wallets and Companies like Paytm, Mobiwik, Freecharge providing the facility of all type of Cashless transaction. Early reports claimed for multiple fold growth in the cashless transaction, though in rural areas people still found it difficult to operate and faith on its security. Moving towards cashless economy has created hurdles for people who did not want to operate the transaction in records in order to avoid any action from the Income Tax Department. As of now digitisation seems to be the sole benefit emerged out from the complete scheme though a lot of people are still expecting something big announcement from the PM Narendra Modi’s coming address to the nation on 31st December 2016.

Going by people’s opinion and as admitted by Mr. Modi, demonetization was targeted long back and Jan Dhan Yojana and Income Declaration Scheme were part of the complete exercise wherein the government had given chance to the people to get their black money converted into white after paying a fixed rate of taxes. Yet some of the notification by RBI including the exemption to political parties and limiting the deposition from the public in general before 30th December are some of the disappointing factors.

As of now public in general is of the opinion that the move for demonetization lost its early objective and not seems to get successful, with a 2000 rupees note higher than the earlier denomination, providing the much better scope of creating black money. The possibility of announcement to curb black money in the form of Gold and Benami Properties are also their still the government must not make any such decision without proper planning and possible out comings of any such decision.

Hope you found the article worth reading!!

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Download our App


More Under Fema / RBI


  1. ARUN MITTAL says:

    The article does not lead anywhere. Most of the things mentioned are already reported and repeated many times over by various reports, critics, analyzers alike. Nothing new at all.

    Nonetheless, besides all that is mentioned herein and more elsewhere, one is still to get a clear verdict of the actual and real result of this so called Demon…..What is the test fit for judgement ?

    Almost all of 14.5 Lac Crore SBNs in circulation or thereabout has been deposited back in the banks .The Old SBNs will be either replaced by RBI or the amount credited to the banks. How much New Currency will be issued by RBI / Govt finally and the balance (if any) to the credit of the Banks may indicate the real volume actually sucked out of system and converted to banking and digital mode. But it gives no Tax revenue, hence, I dont think it indicates how much Black got converted to White. Needles to say, how much of New Currency will end up hoarded again is anybody’s guess.

    Further, contrary to statements by the PM and his various Ministers that ,Deposition of almost all SBNs mean forcing out of total black money. In reality only that cash that got deposited (black in nature and locked in lockers hitherto) which was considered tax safe under the demonetization circumstances (knowingly or unwittingly) and the cash which got seized in raids and crackdown on conversion rackets plus that may get deposited under the Declaration Scheme is the actual idle Black cash brought to main stream. Balance was already in circulation as a parallel economy.

    How much Black got converted to White will be a function of actual windfall Tax revenue collected. After all, test of Black or White is whether Tax Paid or Not. Yes ?

    Thus, we still need some real numbers to factually gauge some important results

  2. B R BHAT, Abu Dhabi, UAE says:

    In the article author had tried to put forward his views. It doesn’t matter if script doesn’t exactly match the title. We Indians (including me) are generally don’t accept any change to our existing system/life style very easily. This is a blessing also, but sometimes a curse. We watch, analyze, criticize, discuss, compare (all these are blessings) and we don’t work (generally, not applicable to all), and when we finish (?) all above, we get no time to do the real work (this is the curse). We (including me) need to change and people (excluding me) are changing that is evident and what I observe. With this I am of the opinion that people will certainly appreciate this demonetization after some years.

  3. Masthan Vali says:

    Nothing wrong in claiming this article as unbiased..when govt itself claiming the demonetization as planned and historic move to save the poor people .. where as in reality it is different.

  4. viji says:

    the heading & the article are totally unrelated & misleading. looks like reading a few cut & paste from various newspapers & journals. no analysis, no view points, no begining & no conclusion.

  5. CA anil GOEL says:

    Surprised to see the word unbiased here. Just checked again the meaning of this word. The author is requested first check the actual meaning of words.

  6. dr. guru Balakrishnan says:

    informative indeed. not a critique. anyway the object of demonetization is two fold – to see terror financing is dried up from the black money source ; fact is now something else; CBDT advised no demonetization as just 6% is in black funds; in that light, demonetization of Modi could be a hasty effort; one needs to see the overall effect; most common men of 125 crore population of India really suffered in the period from Nov 9th to dec 30th so far; road ahead is anybodies say of guess work only, in fact there is not much of economics studies or econometric studies really carried out; if to be done it is indeed a long drawn process one can say with some certainty; in fact no one blames Modi, as he is no economist like DR. Manmohan Singh is, besides he was himself a governor of RBI earlier -indeed a patient researcher unlike today researchers in any branch of studies, i have seen since 1960s – ; he did not dare to do this effort, may be due to the futility of exercise that could be, as it is a well known fact – any currency system in any mode would allow ‘black funds ‘ to emerge – as ideas of ‘black’ came from not accounting to government is the sum and substance of black money ; that way IT Act 1922 permitted sec 66 but allowed one to account by saying ‘ no clear accounting is done’ but i have so much funds, i will pay under ‘the highest slab’ earner allowed to pay highest tariff say 33% of the funds; that way by that Act the govt anointed the ‘black funds’ as such, that seems sensible idea of any governance economics – ‘if you cannot track as you are today, what is wrong to allow ‘unaccounted cash’ probably would have been deposited in the banking system, means, ‘circulation of money flow as cash flow ‘ would have really augmented the economy , better than what the ‘economic growth talks about today’; reason is all that you printed the currency in paper or plastic paper mode’ that need to be preserved – ‘only some value rationale you can adjust as in exchange market where the currency values moves up and down as the values of different currencies fluctuate ‘ more than that idea you cannot do any thing meaningful is already taught to you by Economics of Exchanges adopted internationally under parity managements all over the world; that way some even flow continues, that method adjusts the values of the currency as a factor managerial technique may be; you cannot over night kill the currency and flush with new currency as such, for that kind of experiments failed is the economic history of any country; so obviously ‘demonetization’ is no panacea as such to absorb the ‘black money as such’ for earlier experiments failed miserably; when you say RBI governor Mr Patel was in the loop; he shd have said , as ‘demonetization world over miserably failed , there is ‘No point visiting that mechanics; that kind of view Mr Raghuraman Rajan felt, so many governors of central banks all over by experiential exposure; i would have pardoned if Modi, and Arun did this ‘demonetization’ ; but fact is how Dr Patel who was considered to be a good economist faltered with such backing of his knowledge in economics of money.
    Demonetzation by Modi cannot achieve anything meaningful except forcing the economy downward trend, and new currency chests in new generation of ‘black funds’ obviously will never go into banks, but in the closed ‘chests’ some where languishing, if Modi idea of 200% penalties or 300% penalties, no black money hoarder would like to pay to the government however much he is a close friend to BJP, RSS or Modi himself;

    only thing is further suffering in economic growth is imminent unfortunately as unemployment soaring, prices of commodities, materials are in downward trend, new employment will be low, as many are shown the door, as economy cannot sustain of the promoters of any businesses is very very obvious, unfortunately. sorry. tks

  7. Rajen Agrawal says:

    The word “unbiased” should be deleted from the article’s title, as it is definitely not so. Thereafter, it’s a good article to read once.

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

February 2024