Published On : Thu, Aug 17th, 2017

Modi’s mysterious math

Prime Minister Narendra Modi has cited some figures linked to demonetisation in his Independence Day speech, prompting the Opposition to ask how he can quote exact amounts if the RBI is still counting the recalled notes.

First figure

Modi said his government had unearthed black money worth Rs 1.25 lakh crore before the demonetisation in November last year. “After forming our government, the first task was to constitute an SIT (special investigation team). Today,… I want to tell the countrymen proudly that we have unearthed black money worth Rs 1.25 lakh crore…. Demonetisation followed this move,” Modi said.

The SIT was formed by the Supreme Court. In March this year, SIT vice-chairman Justice Arijit Pasayat had said the SIT had unearthed black money worth Rs 70,000 crore. It is not known when it swelled to Rs 1.25 lakh crore.

Second figure

Modi went on to suggest that demonetisation had led to a situation where black money had to be deposited with the banks. “Black money worth Rs 2 lakh crore had to be deposited in the banks and this system has forced them to be accountable.”

It is not clear who estimated the quantum of post-demonetisation black money deposits at Rs 2 lakh crore when the RBI has not yet counted the money and the tax-filing window for the financial year 2016-17 still remains open. The cash deposited can be characterised as black money only when these deposits are matched with tax filings.

Other figures

“According to research conducted by outside experts, about Rs 3 lakh crore that had never come into the banking system before has been brought into the system after the demonetisation. More than Rs 1.75 lakh crore deposited in the banks is under the scanner,” Modi said.

In his speech delivered in Hindi, Modi referred to this money as ” atirikt” (surplus or excess) that was never a part of the banking system.

A study carried out in August by two RBI officials, Bhupal Singh and Indrajit Roy, directors in the monetary policy department and the department of statistics and information management, respectively, had determined the “excess deposits that accrued to the banking system due to demonetisation to be in the range of Rs 2.8 to 4.3 trillion”.

The study determined the benchmark nominal rate of deposit growth based on three scenarios. The average deposit growth in the three scenarios ranged between 9.8 and 10.6 per cent in the earlier period. During the demonetisation period, deposits ballooned to 14.5 per cent. This meant deposit growth was about 4 percentage points.

It is not known if Modi was referring to this report when he spoke about the excess money that had come back into the system. But any of the “excess cash” deposited can be classified as tainted money only after all the money is counted and cross-checked with income tax filings.

Adding up the two black money estimates (Rs 1.25 lakh crore and Rs 2 lakh crore) will also throw up a figure of over Rs 3 lakh crore.

The RBI had estimated that Rs 12.44 lakh crore in the recalled notes was deposited until December 10, 2016. The announcement was made on December 13, after which the RBI has clammed up on the estimates.

When the demonetisation was launched, the total value of these notes was put at Rs 15.4 lakh crore. If most or all the money had come back by December 30, it will knock the rationale for demonetisation into a cocked hat.

… As Published by The Telegraph