RBI report does not give any indication of the high-value counterfeit currencies, officially estimated at Rs3,00,000 crore to Rs5,00,000 crore, that have not flown back to bank vaults
Official estimates put the amount of counterfeit currency that was in circulation before the demonetisation move at anywhere between Rs3,00,000 crore and Rs5,00,000 crore, while the actual amount could be far greater.
Expectedly, such notes have effectively been held back from depositing with banks or even destroyed during the remonetisation exercise or are still being held by criminals and anti-socials hoping to recirculate these through some channels some day.
It is also possible that part of the fake notes deposited with banks have passed off as genuine currency and those still stashed away may also include genuine bank notes held by black money holders.
Opponents of the demonitisation exercise say the RBI numbers put to rest the Narendra Modi government's claims that the move helped to cleanse the system of black money.
''Until June 30, 2017, SBNs [specified bank notes] were received by the Reserve Bank either directly or from bank branches / post offices through the currency chest mechanism. Some of these SBNs are still lying in the currency chests. The value of the SBNs received by the currency chests has been credited to the banks' account on ''said to contain basis''. Till such time these notes are processed by the Reserve Bank for their numerical accuracy and authenticity, only an estimation of SBNs received back is possible. Subject to future corrections based on verification process when completed, the estimated value of SBNs received as on June 30, 2017 is Rs.15.28 trillion,'' the RBI report states
From the reports / data earlier published by RBI, currency in Rs1,000 and Rs500 denomination in circulation was at Rs15,44,000 crore. (685.78 crore of Rs1,000 notes and 1,716.51 crore of Rs500 notes, amounting separately to Rs685,782 crore and Rs858,253 crore, respectively). Taking into consideration, the value of SBNs now reported to have been counted, approximately 98.96 per cent of SBNs in value terms have come back to the RBI after demonetisation.
This means that only an estimated Rs16,000 crore worth of SBNs have not come back to the RBI so far.
The RBI annual report said that ''subject to future corrections based on verification process when completed,'' the estimated value of the banned notes it ''received'' was Rs15,28,000 crore. This compares with the Rs15,44,000 crore of the invalidated notes that were in circulation as of 8 November, according to data provided by minister of state for finance Arjun Meghwal to Parliament on 21 January (See: RBI says 99% of scrapped notes have returned into system.)
Following Prime Minister Narendra Modi's surprise announcement of the invalidation of old high-value currency notes on 8 November, estimates suggested that around Rs3,00,000 would not return to the banking system because it was unaccounted or black money. While defending demonetisation in the Supreme Court in November, then attorney general Mukul Rohatgi said around Rs4,00,000 crore to Rs5,00,000 crore would probably not find its way back into the system.
By December, though, it was clear that tax evaders had managed to legalise their unaccounted money using mules and proxies to make deposits, made high-value purchases using back-dated bills and colluded with bank officials to exchange old currency.
With RBI's data showing that most of the money has returned to the system, the opposition was quick to criticise the government. The Congress said RBI's report was proof that demonetisation had ''utterly failed''.
Measuring the success of demonetisation on the basis of how much cash has come into the system shows ''an inadequate understanding'', finance minister Arun Jaitley said.
''The fact that the entire demonetised money has come back shows black money has been accounted for completely. In that sense, demonetisation has been a success,'' said R. Gandhi, former deputy governor of RBI. It is now up to the tax department to do its job, he added. In January, the government decided to use data analytics to identify people whose deposits didn't match their known sources of income.
In his Independence Day speech this year, Prime Minister Modi said that more than Rs 1.75 trillion deposited in banks after demonetisation was under the scanner.
''The trail of deposits'' of bank notes ''into bank accounts may provide valuable information to the revenue authorities in tracing unaccounted money'', RBI said in its annual report.
Interestingly, RBI's annual report shows a spike in the number of so-called suspicious transaction reports filed by banks, financial institutions and intermediaries. Banks filed 361,214 such reports in 2016-17, up from 61,361 the previous year. This is evidence that people have been forced to deposit money ''illegitimately lying with them'', Jaitley said in a press briefing after the release of the RBI annual report.
Finance minister Arun Jaitley said the major objectives of demonetisation was a ''less cash economy'', digitization, formalisation of the economy, widening the tax base, curbing terror financing, tracking black money, and clamping down on counterfeit currency, which had been met.
''The effect of demonetisation in all these areas have been extremely positive,'' he added.