November 8, 2016 would
be remembered as a watershed moment in the history of Indian economy.
This day signifies the resolve of this Government to cure the country
from “dreaded disease of black money”. We, the Indians, were forced to
live with this attitude of “chalta hai” with respect to corruption and
black money and the brunt of this attitude was faced particularly by the
middle class and lower strata of society. It was a hidden urge of the
larger section of our society for a long period to root out the curse of
corruption and black money; and it was this urge which manifested in the
verdict of people in May 2014.
Immediately after taking up responsibility in May 2014, this Government
decided to fulfil the wish of the people in tackling the menace of black
money by constituting SIT on black money. Our country is aware that how
even a direction from the Supreme Court on this issue was ignored by the
then Government for number of years. Another example of lack of will to
fight against black money was the delay of 28 years in implementation of
Benami Property Act.
This Government took decisions and implemented the earlier provisions of
law in a well-considered and planned manner over three years to meet the
objective of fight against black money. These decisions span from
setting up of SIT to passing of necessary laws for foreign assets to
demonetisation and to implementation of GST.
When the country is participating in “Anti-Black Money Day”, a debate
was started that whether the entire exercise of demonetisation has
served any intended purpose. This narrative attempts to bring out
positive outcomes of demonetization in short-term and medium-term with
respect to stated objectives.
RBI has reported in their Annual Accounts that Specified Bank Notes (SBNs)
of estimated value of Rs.15.28 lakh crore have been deposited back as on
30.6.2017. The outstanding SBNs as on 8th November, 2016 were of
Rs.15.44 lakh crore value. The total currency in circulation of all
denominations as on 8th November, 2016 was 17.77 lakh crore.
One of the important objective of demonetisation was to make India a
less cash economy and thereby reduce the flow of black money in the
system. The reduction in currency in circulation from the base scenario
reflects that this intended objective has been met. The published figure
of “currency in circulation” for half year ending September, 2017 is
Rs.15.89 lakh crore. This shows year on year variation of (-) Rs.1.39
lakh crore; whereas year on year variation for the same period during
last year was (+) Rs.2.50 lakh crore. This means that reduction in
currency in circulation is of the order of Rs.3.89 lakh crore.
Why should we remove excess currency from the system? Why should we
curtail cash transactions? It is common knowledge that cash is
anonymous. When demonetization was implemented, one of the intended
objectives was to put identity on the cash holdings in the economy. With
the return of Rs.15.28 lakh crore in the formal banking system, almost
entire cash holding of the economy now has an address. It is no more
anonymous. From this inflow, the amount involving suspicious
transactions based on various estimates ranges from Rs.1.6 lakh crore to
Rs.1.7 lakh crore. Now it is with the tax administration and other
enforcement agencies to use big data analytics and crack down on
Steps in this direction have already started. Number of Suspicious
Transaction Reports filed by banks during 2016-17 has gone up from
61,361 in 2015-16 to 3,61,214; the increase during the same period for
Financial Institutions is from 40,333 to 94,836 and for intermediaries
registered with SEBI the increase is from 4,579 to 16,953.
Based on big data analytics, cash seizure by Income Tax Department has
more than doubled in 2016-17 when compared to 2015-16; during search and
seizure by the Department Rs.15,497 crore of undisclosed income has been
admitted which is 38% higher than the undisclosed amount admitted during
2015-16; and undisclosed income detected during surveys in 2016-17 is
Rs.13,716 crore which is 41% higher than the detection made in 2015-16.
Undisclosed income admitted and undisclosed income detected taken
together amounts to Rs.29,213 crore; which is close to 18% of the amount
involved in suspicious transactions. This process will gain momentum
under “Operation Clean Money” launched on January 31, 2017.
The exercise to remove
the anonymity with currency has further yielded results in the form of
• 56 lakh new
individual tax payers filing their returns till August 5, 2017 which was
the last date for filing return for this category; last year this number
was about 22 lakh;
• Self-Assessment Tax
(voluntary payment by tax payers at the time of filing return) paid by
non-corporate tax payers increasing by 34.25% during April 1 to August 5
in 2017 when compared to the same period in 2016.
With increase in tax base and bringing back undisclosed income into the
formal economy, the amount of Advance Tax paid by non-corporate tax
payers during the current year has also increased by about 42% during
1st April to 5th August.
The leads gathered due to data collected during demonetisation period
have led to identification of 2.97 lakh suspect shell companies. After
issuance of statutory notices to these companies and following due
process under the law, 2.24 lakh companies have been de-registered from
the books of Registrar of Companies.
Further actions were taken under the law to stop operation of bank
accounts of these struck off companies. Actions are also being taken for
freezing their bank accounts and debarring their directors from being on
board of any company. In the initial analysis of bank accounts of such
companies following information has come out which are worth mentioning:
• Of 2.97 lakh struck
off companies, information pertaining to 28,088 companies involving
49,910 bank accounts show that these companies have deposited and
withdrawn Rs.10,200 crore from 9th November 2016 till the date of strike
off from RoC;
• Many of these
companies are found to have more than 100 bank accounts – one company
even reaching a figure of 2,134 accounts;
Simultaneously, Income Tax Department has taken action against more than
1150 shell companies which were used as conduits by over 22,000
beneficiaries to launder more than Rs.13,300 crore.
Post demonetization, SEBI has introduced a Graded Surveillance Measure
in stock exchanges. This measure has been introduced in over 800
securities by the exchanges. Inactive and suspended companies many a
time are used as harbours of manipulative minds. In order to ensure that
such suspicious companies do not languish in the exchanges, over 450
such companies have been delisted and demat accounts of their promoters
have been frozen; they have also been barred to be directors of listed
companies. Around 800 companies listed on erstwhile regional exchanges
are not traceable and a process has been initiated to declare them as
Demonetization appears to have led to an acceleration in the
financialisation of savings. In parallel, there is a shift towards
greater formalisation of the economy in the near term aided by the
introduction of Good and Services Tax (GST). Some of the parameters
indicating such shift are given below:
• Corporate bond market
has started reaping the benefits of additional financial savings and
transmission of interest rate reduction. The corporate Bond market
issuance grew to Rs. 1.78 lakh crore in 2016-17, the year on year
increase was Rs.78,000 crore. With other sources of issuance in capital
market the incremental variation is almost Rs.2 lakh crore in 2016-17
while that was Rs.1 lakh crore in 2015-16.
• This trend is further
substantiated by the surge in primary market raising through public and
rights issues. There were 87 issues of public and rights for raising
equity involving amount of Rs.24,054 crore during FY 2015-16; in the
first six months of 2017-18 itself there are 99 such issues amounting to
• Net inflow into
Mutual Funds during 2016-17 increased by 155% during 2016-17 over
2015-16 reaching 3.43 lakh crore; Net inflows in mutual funds during
November 2016 to June 2017 was about Rs.1.7 lakh crore as against
Rs.9,160 crore during the same period in the year before;
• Premia collected by
life insurance companies more than doubled in November 2016; the
cumulative collections during November 2016 to January 2017 increased by
46 per cent over the same period of the previous year. The premium
collections witnessed 21% growth for year ending September 2017 over the
corresponding period of previous year.
With a shift to less cash economy, India has taken a big leap in digital
payment during 2016-17. Some of the trends are given below:
• 110 crore
transactions, valued at around Rs.3.3 lakh crore and another 240 crore
transactions, valued at Rs.3.3 lakh crore were carried out through
credit cards and debit cards, respectively. The value of transaction for
debit and credit card was Rs.1.6 lakh crore and Rs.2.4 lakh crore
respectively during 2015-16.
• Total value of transaction with Pre-Paid instruments (PPIs) have
increased from Rs.48,800 crore in 2015-16 to Rs.83,800 crore in 2016-17.
Total volume of transactions through PPIs have increased from about 75
crore to 196 crore.
• During 2016-17, National Electronic Funds Transfer (NEFT) handled 160
crore transactions valued at Rs.120 lakh crore, up from around 130 crore
transactions for Rs.83 lakh crore in the previous year.
With higher level of formalisation, it has brought out related benefits
to workers who were denied of social security benefits in the form of
EPF contribution, subscription to ESIC facilities and payments of wages
in their bank accounts. Large increase in opening of bank accounts for
workers, enrolment in EPF and ESIC are added benefits of demonetisation.
More than 1 crore workers were added to EPF and ESIC system
post-demonetisation which was almost 30% of existing beneficiaries. Bank
accounts were opened for about 50 lakh workers to get their wages
credited in their accounts. Necessary amendment in Payment of Wages Act
was done to facilitate this.
The reduction in incidences of stone pelting, protests in J&K and naxal
activities in LWE affected districts are also attributed to the impact
of demonetisation as these miscreants have run out of cash. Their access
to Fake Indian Currency Note (FICN) was also restricted. During 2016-17,
the detection of FICN for Rs.1000 denomination increased from 1.43 lakh
pieces to 2.56 lakh pieces. At the Reserve Bank’s currency verification
and processing system, during 2015-16, there were 2.4 pieces of FICNs of
Rs.500 denomination and 5.8 pieces of FICNs of Rs.1000 denomination for
every million pieces notes processed; which rose to 5.5 pieces and 12.4
pieces, respectively, during the post-demonetisation period. This shows
almost doubling of such detection.
In an overall analysis, it would not be wrong to say that country has
moved on to a much cleaner, transparent and honest financial system.
Benefits of these may not yet be visible to some people. The next
generation will view post November, 2016 national economic development
with a great sense of pride as it has provided them a fair and honest
system to live in.