RBI says 99% of scrapped notes have returned into system

The Reserve Bank of India (RBI) on Wednesday said in its annual report that Rs15.28 lakh crore, or 99 per cent of the Rs15.44 lakh crore, of scrapped Rs500 and Rs1000 notes had come back into the banking system between the demonetisation of 8 November last year and 30 June this year.

The report for the financial year 2016-17 said that out of 632.6 crore pieces of Rs1,000 currency notes in circulation, 623.7 crore or 98.6 per cent had been returned since the note ban. Strangely, it was silent on the number of old Rs500 notes exchanged.

The RBI report also stated that 7.62 lakh pieces of counterfeit currency notes were detected in 2016-17 as against 6.32 lakh in 2015-16.

It said added that the cost incurred by RBI in printing notes has doubled to Rs7,965 crore in the financial year 2016-17 from Rs3,421 crore in 2015-16. The central bank said that the surge in cost is on account of printing of new currency notes after demonetisation.

The RBI said that in order to meet the shortage of currency after note ban, it pumped in 2,380 crore pieces of bank notes into circulation worth Rs 5.54 lakh crore between 9 November and 31 December 2016.

In terms of value, the share of Rs500 and above banknotes in the system, stood at 73.4 per cent at end of March 2017, as against 86.4 per cent a year ago, according to the report. There were as many 588.2 crore of Rs 500 notes, both old and new in circulation as of March 31, 2017. A year ago, there were 1,570.7 crore Rs 500 notes in circulation.

The share of the newly introduced Rs2,000 notes was reported to be 50.2 per cent of all notes in circulation at end of March 2017.

The demonetisation move was announced by the Narendra Modi-led government to flush out black money, slash at the roots of counterfeit currency and end terrorist funding in the country. People were allowed to deposit old Rs500 and Rs1000 notes in banks Till 31 December 2016, with unusual deposits coming under the scrutiny of Income Tax authorities.

The opposition was quick to latch on to the RBI data to say demonetisation was a political gimmick that disrupted significant parts of the economy and caused needless hardship to the poor and working class, without really unearthing black money.

Former finance minister P Chidambaram of the Congress tweeted, ''RBI 'gained' Rs16,000 crore, but 'lost' Rs21,000 crore in printing new notes! The economists deserve Nobel Prize.''

He also asked whether the move to demonetise 86 per cent of the currency in circulation was ''a scheme designed to convert black money into white'' rather than the other way around (See: RBI mum on fate of fake notes).

However, government spokespersons as well as independent economists said the success or failure of demonetisation cannot be measured by the amount of money returned. Positive impacts of the measure included bringing dormant cash into the banking system and thus lowering the cost of loans, as well as bringing more entities into the tax net.

The government had earlier said that money trails generated as a result of demonetisation has resulted in identification of 2 lakh shell companies. It also claimed that the addition of 56 lakh new tax payers was a result of demonetisation, which led to better compliance and better tax revenues.