Rs2.5 lakh crore of demonetised notes may not come back to the system
Since the Prime Minister announced demonetisation on November 8, there has been a lot of calculation and research being done, on how much money will come back to the system and how much will not. Dr Soumya Kanti Ghosh of State Bank of India calculates that that around Rs2.5 lakh crore will not be returned to the system. Here is his logic.
 
As of November 9, 2016, the amount of high currency denomination notes was Rs15,441 billion, excluding the cash with banks. Till date the Reserve Bank of India (RBI) has published data regarding the deposited/exchange notes, twice, with a gap of 9 days, 10-18 November and 19-27 November. 
 
The total money deposited/exchanged during the period 10-18 November was Rs5,446 billion, with an average of Rs605 billion per working day and during the period 19-27 November was Rs3,004 billion, with an average of Rs501 billion per working day. This shows a 17% decline in average working day deposit/exchange money. 
 
As is evident from the data, the daily deposit average is on a declining trend. The remaining three days of November can be conservatively assumed to have an average of Rs375 billion per day (25% less than what came during 19-27 November) i.e. a total of Rs1,125 billion. 
 
Breaking December into three different periods, a total of Rs3,360 billion can be assumed to be returned to the system (Rs1,500 billion between 1-7 December, Rs900 between 8-15 December and Rs960 between 16-30 December). As per the assumptions, Rs10 billion will be deposited during 1 January to 31 March 2017. 
 
Adding these numbers up, Rs12,945 billion will be returned to the system against Rs15,441 billion as of November 9, 2016 and Rs2,496 billion will not be returned, as per SBI research. 
 
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    COMMENTS

    Veeresh Malik

    4 years ago

    Anecdotal but dipstick - one of the busiest and most efficient SBI CDMs is in front of my house, located at a major bus/metro interchange called Moolchand, serving not just people from the area but also transients of all sorts. This SBI CDM has been working continuously since 8th November, day and night, weekends and holidays included, swallowing old currency notes relentlessly. The lines were there 24x7, including middle of the night and pre-dawn, and so was the clearance. Over the last 5-6 days, there are no lines at all most of the time, and the inference one draws is that a bulk of the old currency notes that had to be deposited have been deposited.

    It is the same at the 11 other PSU branches opposite my home.

    Lines here are now only for withdrawal of cash as the ATMs have been dry for some time now - it appears that ATMs at non-bank locations are functioning at the cost of ATMs attached to bank branches.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    MUKESH AGARWAL

    4 years ago

    As in news more than 11 lac crore out of 15 lac crore deposited so far and in view of even in decline pace remaining portion will also be deposited. I am fearful what will happen if deposit is more than money in circulation as per RBI. Is there proper system to recognize forged notes or they also have been deposited as normal.

    Amol Kokate

    4 years ago

    I don't see any strong logic in this article, not worth of publishing

    Ramesh Mehta

    4 years ago

    Due to the new scheme of allowing deposit w/50% tax, all the money should get deposited.

    Debates, Discussions, Demonetisation and Distress
    Most discussions and debates on demonetisation have a few things in common: the move is right; it is the worst planned event in India’s economic history; calculations on black money went wrong; and rural masses are in distress unable to meet their daily needs. I am a strong votary of demonetisation. I am, however, not a supporter of complete digitisation or cashless economy. Less cash economy can be a target of gradualism and not maximalism.
     
    Former Governors of RBI, C. Rangarajan, Y.V. Reddy, and Subbarao also lent support to the move in their articulations in the Press and media. Kenneth Rogoff, renowned economist also supported the move, but the mechanism suggested was gradualism and not a sudden action like the currently engineered measure. However, would all these articulations, mine not excluded, alleviate the distress of the vast rural masses?
     
    Both houses of Parliament demanded a discussion, but were unwilling to discuss demonetisation for reasons that the common man was unable to understand. The distress of those who had to bury their dead or had imminent marriages in the family, not to mention the plight labour on daily wages has been immense. 
     
    A few important macro-economic and demographic aspects deserve a recap to understand the implications of a cashless economy. Cash to GDP ratio of Indian commerce is 10%. Only 4.3% of people pay tax and all they have deposited all their cash savings into their bank accounts during the first 15 days of demonetisation. 30% of the population is illiterate; only 17% of the population has smart phones that can use mobile apps for money operations. In the past credit cards, debit cards and net transactions have all been victims of cyber-attacks putting the customers and banks to huge losses and causing fear among users.
     
    From priests to prostitutes, informal and small businesses and many others will continue to deal in cash for ages to come. The cash economy has not been extinguished even in developed nations that have the highest density of mobiles. 
     
    Wealth inequalities are very high in India. The richest 1% owns 58.4% of India’s wealth and the richest 10% of Indians owns 80.7% of wealth. The bottom half of the population owns a mere 2.1% of the country’s wealth (according to the latest data on Global Wealth by ‘Credit Suisse Group, EG, a financial company based in Zurich, Switzerland’. Hence introduction of ‘wealth tax’ and ‘estate duty (inheritance tax)’ is essential.
     
    Pertinently, 25% of the population is poor and does not come under the tax net. Another 20% of the earning population is below the tax threshold. This leaves approximately 51% who evade or avoid paying taxes and these should be the target of the government. Where are these persons? Movie producers who declare often that they spent hundreds of crores of rupees in producing movies; actors who receive lakhs and crores of rupees; real estate; professionals like high flying advocates; chartered accountants, politicians, doctors and several businesses in hardware, waste and scrap, wood and wood products, hawala merchants, politicians of all hues etc., all come in the evasion bracket of 51%. 
     
    Are the Prime Minister and the Finance Minister ignorant of these facts? I imagine not. Can the digital economy be accelerated in just 50 days by strangulating cash economy? Any increase in digital payments, can, at best be just icing on the cake. Digitisation should be a long term goal. The immediate objectives of demonetisation, like containing inflation, preventing access to terrorist havens and bringing to book tax evaders are all laudable and the entire country supports the move.
     
    The Planning Department, Government of Telangana, carried out a quick survey on the eve of the visit of a Secretaries’ Committee of the Union Government on the impact of demonetisation. The survey done in Warangal, Siddipet and Rangareddy (urban) districts throws not merely the difficulties of the affected persons but also provides solutions worthy to note for immediate implementation. 
     
     
    The quick survey with 15 questions covered 26 staff members at secretariat representing all cadres in planning department; 480 persons representing domestic households, farm households, retail traders in vegetables, kirana etc, and self-help groups and women in Siddipet, a similar number in Warangal that also covered education sector and R.R. Districts. The sample is spread at random in the mandal headquarters. Options include: Option 1: Good policy and good implementation, Option 2 Good policy but bad implementation, Option 3 Bad policy and bad implementation. 
     
    38% of Farmers, 42% of Agriculture Labour, 27% of Self-employed, 88% of Business people and 23% of Employees said that they are facing a “severe problem in their day to day life” after demonetisation. The Integrated Household Survey by the State Government in 2014 revealed that 46% did not have a bank account. After Jan Dhan Yojana the percentage declined to 25%. It is well-nigh impossible for this 25% of the population to open bank accounts before December 30, 2016 as the coverage of bank branches, Banking Correspondents, BFs, Post offices and even much-maligned cooperative societies have no access to this population. 
     
    The survey revealed that about 73% of respondents welcomed the demonetisation initiative but felt it is badly implemented. About 19% thought it faulty both in policy and implementation; this constituency is mainly educated persons with post graduate degrees. Income stratification reveals that 40% of persons earning less than Rs5 lakh per annum find that the policy is poorly conceived and badly implemented. About 79% of the staff having income levels between Rs5 lakh to Rs10 lakh and 83% of the staff having income levels between Rs10 lakh to Rs15 lakh said that the policy is good but poorly executed. (see the chart).
     
    The government has an archaic Treasury Code that is incompatible with digital operations of State Governments. This Treasury Code should be revised on a mission mode if the reform agenda has to be placed on a firm footing. All budget sanctions and releases of both the central and State governments should shift to digital banking.
     
    Some suggestions made by respondents to the survey cited are of great value and the PM and FM may like to pay heed to them:
    • Reduce income tax rates and introduce wealth tax for the super-rich.
    • Withdraw all incentives provided to the high-end housing schemes
    • Remove service charges, surcharges and all other taxes on credit / debit card transactions.
    • Government should provide POS machines to each vendor to encourage online / cashless transactions.  Digitize the transactions of the value of Rs.500 and above.
    • Mobile ATM services may be extended to rural and hard to reach areas and frequency may be increased.
     
    What surprised many was that Banks like HDFC Bank, ICICI Bank, Axis Bank, Yes Bank, which boasted high volume of online transactions were doled out higher volumes of currencies of lower denominations compared to PSU and private banks that predominantly cater to cash-using segments of society. Undue favours from the RBI were patently seen in some places. 
     
    It is not too late to take effective steps to mitigate the pain and suffering that is expected to continue for another 28 days by taking note of what people have to say. 
     

     

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    COMMENTS

    Jyoti Dua

    4 years ago

    A good analysis by Dr Raju. He has rightly opined that Digitisation should be a long term goal. As a first step towards digitisation, transaction charges should not be levied. RBI should release more and more lower currency notes for circulation in rural areas. While IT department need to work diligently to include tax evader into the tax net, it should be ensured that common man is not harassed.

    IC Rao

    4 years ago

    51% of the population earn taxable income but do not pay any tax. These are the people who depend entirely on cash to conceal their incomes. They should be the prime targets of demonetisation. All traders ( other than street vendors and hawkers) must, by law, maintain card swipe machine or digital receiving system. Governments, by law, must not accept cash payment of dues. All transactions above Rs 20,000 must be illegal.

    REPLY

    Jyoti Dua

    In Reply to IC Rao 4 years ago

    Good suggestions. Govt should consider such valuable suggestions.

    Long queues at banks as many ATMs shut in Bengaluru
    With hundreds of ATMs shut after cash dried up in them by Thursday afternoon, thousands of people queued up at banks in the city to draw whatever amount they could get across the counters.
     
    Barring a few ATMs of private banks and the State Bank of India (SBI) in some commercial and residential areas, most of other bank ATMs had no money.
     
    "As more cash was required in the banks for withdrawal by their saving and current account holders on the month's first day for wages and contingencies, many of them could not replenish notes in their ATMs post-noon," admitted a bank union representative to IANS here.
     
    With the acute shortage of new Rs 500 notes even a fortnight after the sudden demonetisation on November 8, most of the ATMs in the city and across Karnataka have been doling out the new Rs 2,000 notes or Rs 100 and Rs 50 notes up to Rs 2,500 daily for every debit or credit card holder.
     
    "We had a tough time in giving even cash across the counters to our account holders as the supply from our treasury chest was 25 per cent (Rs 15 lakh) of our daily need of Rs 60 lakh. We had to literally ration the cash for each customer to ensure they don't go out empty-handed," lamented Karnataka Bank's branch manager Sadanand Kumar.
     
    Though saving account holders are entitled to draw up to Rs 24,000 per week and current account holders up to Rs 50,000 a week, many of them were told come on Friday and Saturday to collect the remaining amount on priority as there was no enough cash to meet the demand.
     
    In many state-run banks like Canara Bank's branch on Infantry Road in the city's central business district, several customers had to wait outside two hours as it ran out of cash and supply was delayed due to shortage at its treasury office.
     
    "We had to restrict and regulate entry of customers into the branch to prevent crowding the premises and avoid any untoward incident due to heavy rush for withdrawals and as our ATM in the annex had to be shut for want of cash," said a bank official on the condition of anonymity.
     
    Being the largest state-run bank with 200 branches and 2,000 ATMs across the city, SBI coped with the rush, as it had enough cash to distribute through its ATMs and counters despite long queues till 4 p.m.
     
    "We have managed to serve about 10,000 customers till the closing hours in the branch with separate counters for withdrawals, deposits and senior citizens," said Srinivasa Rao, Senior Manager of SBI's Shivajinagar branch.
     
    To meet the urgent needs of current account holders, including companies and commercial establishments, the bank had to rationalise withdrawals by saving account holders, as deposits were mostly of old Rs 500 and Rs 1,000 notes, which are invalid.
     
    "Even our regular customers are not depositing enough Rs 100 and Rs 50 notes but Rs.2,000 notes. As a result, we are unable to rotate cash as before demonetisation. With the new Rs.500 notes in short-supply, we are forced to give Rs.20 and Rs.10 notes or coins for retail customers," added Rao.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
     

     

  • User 

    COMMENTS

    MUKESH AGARWAL

    4 years ago

    Note Printing may also be delegated to SBI from RBI as Banks are piller for demonetisation and facing public comments for short supply of currency from RBI

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