Published: Thu, August 30, 2018
Money | By Bruce West

How Successful was Demonetisation? Four Takeaways From the RBI’s Annual Report

How Successful was Demonetisation? Four Takeaways From the RBI’s Annual Report

Senior Congress leader P. Chidambaram Wednesday slammed the government after the Reserve Bank of India (RBI) said that as much as 99.3 per cent of the demonetised Rs 500 and Rs 1,000 notes have returned to the banking system, saying the Indian economy had suffered due to the notes ban by way of job loss, closure of industries and the GDP growth. Counterfeit notes of Rs 100 denomination continue to dominate the fake Indian currency note (FICN) segment with 45.75 per cent of the fake notes recovered in 2017-18 being of Rs 100 denomination, according to the Reserve Bank of India's (RBI) annual report for the year 2017-18. The SBNs received were verified, counted and processed in the sophisticated high speed CVPS (currency verification and processing system) for accuracy and genuineness, and shredded and briquetted in the shredding and briquetting system, it said.

The government had introduced Rs 500 and Rs 2000 notes after demonetisation, which absorbed 85 per cent of the old currency notes from the economy. Besides, the value of bank notes in circulation has increased by 37.7% over the year, reaching Rs 18,037 lakh crore by the end of March 2018. They have been disposed of and the final account that has come up is about Rs. 10 thousand odd crore of the notes have not come back.

After the midnight stroke by Prime Minister Narendra Modi, the invalid notes called specified bank notes, were allowed to be deposited in banks across the country with significant deposits coming under income tax scrutiny. Crores of daily wage earners lost their jobs and the country lost 1.5 pc of GDP growth that translates into Rs 2.25 lakh crore per year, he claimed. This year, it transferred Rs 500 billion to the government as dividend, compared with Rs 306.6 billion a year ago. The thinking behind this theory was that if a certain amount of the demonetised currency didn't come back into the system - if it was dumped in a river or burnt to ashes because its owners were afraid of being caught with black money - it would reduce the RBI's liabilities.

"There are some small notes which are stuck in the whole process, which can come back".

Hours after the report was released, the Ministry of Finance held a press conference in the evening, where department of economic affairs secretary Subhash Chandra Garg declared that demonetisation had achieved its objectives but declined to provide further information and expand on this statement. Over five lakh shell companies were closed down, he said.

The overall notes in circulation added up to Rs 18.03 lakh crore as on March 2018, displaying a growth of 9.9 per cent over March 2016. 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.

"The notes issued increased by 26.93 per cent from Rs 15,063.31 billion as on June 30, 2017 to Rs 19,119.60 billion as on June 30, 2018", the report said.

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