Demonetisation may be unable to phase out all the black money, here’s why

It has been 12 days since Prime Minister Narendra Modi launched his demonetisation scheme and now people have started questioning the outcomes of it-whether this scheme really flushed out the black money? Well the answer is, no.

Black money estimate ranges from 20% to 60% and demonetisation alone won’t be able to bring them to surface. This is because it is not all in the form of cash. According to several government reports, black money exists in the form of different kinds of assets like benami properties, bullion, shares etc. Then there is one component stashed away in foreign tax havens. Only a fraction of the total black money is hoarded as cash.

Finance Ministry, in 2012, set up a committee on ‘Measures to Tackle Black Money in India and Abroad' and it was headed by the Chairman of Central Board of Direct Taxes (CBDT) and the committee had said, "demonetisation may not be a solution for tackling black money in the economy, which is largely held in the form of benami properties, bullion and jewellery etc."

So, estimates for illegal cash range from 3% to 5% of the total black economy. Taking the higher 5% figure, black money in cash would be somewhere between Rs 1.4 lakh crore and Rs 4.5 lakh crore.

Assuming the velocity of circulation to be no different than in the white economy, you could say that cash component is 38% of the total currency (Rs 16.5 lakh crore). So, around Rs 6.5 lakh crore is in cash form,” Arun Kumar, a former JNU professor and an expert on black economy, told ET.

According to reports, officials were expecting around Rs 3 lakh crore to remain unreturned to banks by December 30. This is what would be the cash component of black money. All this computation goes to show only one thing - a very large share, in fact the bulk of black money, is not going to be caught in the present drive.

Other objective of demonetisation was to rule out fake currency. Yes this objective will be met by the government until the fakes of the new Rs 2,000 notes rolls out.

(image: IndiaTimes)