99.3% of demonetised currency returned to banks: RBI

Anna Jefferson
August 30, 2018

Rahul Gandhi accused Prime Minister Narendra Modi's demonetisation move failing to eradicate black money. The Wire breaks it down. This is in sharp contrast to the government's push for digitisation and a less-cash economy.

The Reserve Bank of India's annual report for 2017-18 said more than 99% of the Rs. 500 and Rs. 1,000 notes, which were withdrawn from circulation in November 2016, had been returned to the central bank. 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.

Asked about reports of fake notes presented to the banks post-demonetisation, Garg said past year in a RBI report it was said, that all the notes were verified and the amount of fake notes was "minuscule and ignorable".

The new Rs 2,000 note - which was initially believed to have come printed with better security measures - was also not immune to counterfeit.

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. The remaining fake notes were detected by the regular banks. The share of Rs. 500 notes, in terms of value, increased from 22.5% to 42.9% in the same period.

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The RBI says most of the demonetised currency is back, indicating that just a minuscule percentage of currency was left out of the system after BJP government's call for unprecedented note ban aimed at curbing black money and corruption. PM Modi had scrapped Rs 500 and Rs 1,000 notes in a surprise announcement on November 8, 2016.

"So, government and RBI actually demonetised only Rs 13,000 crore and the country paid a huge price. If that was the objective then yes, it has failed because Rs 13,000 crore is the amount, which is possibly held outside the country in nations such as Nepal, Bhutan, Bangladesh, Burma who simply did not have the facility to exchange the currency", the news channel reported Sen as saying. Over 100 lives were lost.

So far the government has not put out any credible evidence as to its efforts in this regard. "The entire trade sector functions on cash, a sizeable portion of which is black money". The amount was higher in FY17 due to demonetisation, which forced the RBI to print more new notes. But the goal posts kept shifting in the weeks and months since with the government citing several reasons to demonetise high value notes such as to choke terror funding, bribery, increasing tax base and checking counterfeit notes. "The total value of SBNs returned from circulation is Rs 15,310.73 billion". Growth has since rebounded, and, in the quarter ended March 2018, the economy expanded 7.7% from a year earlier.

SBNs refer to the demonetised old 500 and 1,000 rupee.

"The value of banknotes in circulation increased by 37.7 per cent over the year to Rs 18,037 billion at March-end 2018", it said. There was, however, a 2.1% increase in the volume of banknotes. It is a natural process as the GDP grows, payment system grows, currency grows.

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As of March 31, 2108, the CiC accounted for 101.8% of its pre-demonetisation level.

Demonetisation led to long queues outside banks.

The currency-to-GDP ratio was 12.1% in 2015-16 and fell to 8.8% in 2016-17 after demonetisation.

The report also shows that only 40% of the Rs 100 notes that were scheduled to be printed in 2017-2018 were supplied.

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