One of the proclaimed aims of the demonetisation campaign in India, the cancellation of the Rs 500 and Rs 1,000 notes, was to clean the economy of the floods of black money which swirl around it. There was an assumption that some significant part of the cash which was out there would not come back into the banking system. Figures of 3 lakh crore were bandied about--money that the Reserve Bank of India would not have to pay out upon and which could thus simply be cancelled producing a dividend to the central government.
As it has turned out this doesn't seem to be the case. We don't have the full and final numbers yet, those we do have are still subject to a certain amount of double counting. But it does look like most cash did make it back into said banking system. Thus no, or at least a much smaller, dividend. However, this does not then mean that the program was a failure:
As the Narendra Modi-led central government had imposed the ban on notes, thereby introducing new currency notes, there had been a deposit of more than 2 lakhs in over 60 lakh bank accounts in the country. Official had asserted that the Income Tax department are scrutinizing details as Rs 3-4 lakh crore of evaded income had been deposited in the banks.
Given the bureaucratic nightmare that operating in the Indian economy can be there is of course a certain inventiveness among the citizenry. This being on full show as people worked out how to deposit those old notes into accounts here and there:
As it analyses bank deposits post- demonetisation, the government has found that an estimated Rs 3-4 lakh crore of tax-evaded income could have been deposited during 50-day window provided to get rid of junked Rs 500/1000 notes.
A senior official said Income Tax Department has been asked to scrutinise details and send notices to depositors of Rs 3-4 lakh crore on which tax could have been evaded.
So, we appear to have failed at this first fence--but not really. As I have pointed out before this was not a single pronged attack:
We have the news that 90% of the scrapped and demonetised Rs 500 and Rs 1,000 notes are back in the banking system. This means that, sadly, there is not going to be a massive dividend to the Reserve Bank of India (and thus government finances, for profits there are fed to government) from the cancellation without compensation of currency that has already been issued. However, we should also note that those same amounts of cash which have been deposited are now inside the reporting system for tax. And undoubtedly there will be some decent portion of those deposits which were formerly black money and which now will be righteously taxed. It's also worth pondering the actual aim here--not so much to punish the black money holders, but to get them to stop.
Whether the money is cancelled and a dividend paid or the money is declared and tax paid makes little difference to the end result--black money transforms into revenue to the central government.
As ever this one specific detail does not mean that demonetisation was or is a success, nor that it is a failure. It is only by considering the overall effect that we can measure that. My contention is that the most damaging part of the black money economy was that it made the mass of people think that the game was rigged, was unfair. That's not a good basis upon which to try and build the investment and effort required to grow an economy significantly. I expect the largest effect to be that psychological one over time.'
http://www.forbes.com/sites/timwors...ed-it-department-to-investigate/#6d7696561791
As it has turned out this doesn't seem to be the case. We don't have the full and final numbers yet, those we do have are still subject to a certain amount of double counting. But it does look like most cash did make it back into said banking system. Thus no, or at least a much smaller, dividend. However, this does not then mean that the program was a failure:
As the Narendra Modi-led central government had imposed the ban on notes, thereby introducing new currency notes, there had been a deposit of more than 2 lakhs in over 60 lakh bank accounts in the country. Official had asserted that the Income Tax department are scrutinizing details as Rs 3-4 lakh crore of evaded income had been deposited in the banks.
Given the bureaucratic nightmare that operating in the Indian economy can be there is of course a certain inventiveness among the citizenry. This being on full show as people worked out how to deposit those old notes into accounts here and there:
As it analyses bank deposits post- demonetisation, the government has found that an estimated Rs 3-4 lakh crore of tax-evaded income could have been deposited during 50-day window provided to get rid of junked Rs 500/1000 notes.
A senior official said Income Tax Department has been asked to scrutinise details and send notices to depositors of Rs 3-4 lakh crore on which tax could have been evaded.
So, we appear to have failed at this first fence--but not really. As I have pointed out before this was not a single pronged attack:
We have the news that 90% of the scrapped and demonetised Rs 500 and Rs 1,000 notes are back in the banking system. This means that, sadly, there is not going to be a massive dividend to the Reserve Bank of India (and thus government finances, for profits there are fed to government) from the cancellation without compensation of currency that has already been issued. However, we should also note that those same amounts of cash which have been deposited are now inside the reporting system for tax. And undoubtedly there will be some decent portion of those deposits which were formerly black money and which now will be righteously taxed. It's also worth pondering the actual aim here--not so much to punish the black money holders, but to get them to stop.
Whether the money is cancelled and a dividend paid or the money is declared and tax paid makes little difference to the end result--black money transforms into revenue to the central government.
As ever this one specific detail does not mean that demonetisation was or is a success, nor that it is a failure. It is only by considering the overall effect that we can measure that. My contention is that the most damaging part of the black money economy was that it made the mass of people think that the game was rigged, was unfair. That's not a good basis upon which to try and build the investment and effort required to grow an economy significantly. I expect the largest effect to be that psychological one over time.'
http://www.forbes.com/sites/timwors...ed-it-department-to-investigate/#6d7696561791
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