Demonetization was a significant phenomenon in Indian history that you would definitely wish to narrate to your kids, grandkids, and great-grandkids!
Many people hailed it as an effective measure to curb black money, some called it a waste of the public exchequer and many simply termed it as a failed ploy by the BJP to garner votes. Nevertheless, it is still an experience that will be definitely spoken about for years to come.
It was undoubtedly a major blow to black-money owners. Their illegitimate stockpile of cash was turned to trash overnight! However, even after a year’s passing of that doomed day, we still have a question in our minds, ‘How much money still hasn’t been recovered in this process?’ From November 2016 to the beginning of 2018, RBI still claims that at least 1% of that junked money is yet to be recovered. Let’s see what happened and when…
The Aftermath of Demonetization
After the 1965 and 1971 gruesome wars with Pakistan, the overnight demonetization of India’s erstwhile 500 and 1000 rupee notes was definitely a war of sorts unlike any other. People grappled with haplessness to make ends meet since the currency in their hands suddenly became useless.
It was a tough time for the entire nation, but thanks to RBI’s constant supply of newly printed ₹100 notes and the newly launched high-value notes, things came back to normal somehow, albeit slower than as claimed by the ruling government.
The facts and figures about demonetization as claimed by the RBI:
- The window for exchanging old valid notes was Nov 8, 2016, to Dec 30, 2016, however, it was extended for specific categories of people like NRIs and expats.
- Unusual deposits of ₹ 1.7 lakh crores were made during the exchange period in India.
- In its 2016 annual report (released on Aug 30, 2017) RBI claimed that almost 99% (₹ 15.28 lakh crore) have made it back to the banking system.
- In retrospect, there was ₹ 15.44 lakh crore of currency in the market, i.e. ₹ 500 notes (1,716.5 crore pieces) and ₹ 1,000 notes (685.8 crore pieces).
- RBI spent a whopping ₹ 7,965 crores for printing the new ₹ 500 and ₹ 2,000 banknotes apart from the cost of printing newly introduced banknotes of ₹ 50, ₹200 and ₹10 denominations recently. This is more than double of what it spent in printing banknotes until Nov 8, 2016 (₹ 3,421 crores)
- As of June 30, 2017, RBI calculated that ₹ 15.28 trillion had been received in old bank notes.
- RBI said that about ₹ 16,050 crores have not yet come back yet.
How RBI counted the notes and is still (yes, still) counting them
- RBI used 66 Sophisticated Currency Verification and Processing (CVPS) machines including 7 CVPS machines from commercial banks. They now use 59 such machines.
- A new tender for procuring more machines was also floated recently since the current number of machines are over-stressed.
- There have been multiple seizures of counterfeit currency notes and demonetized notes since the day of demonetization of high-value banknotes, but still, the entire 1% the currency is yet to come back.
Why the ‘1%’ still somehow eludes the RBI?
- The government allowed holders of the demonetized currency to deposit the invalidated notes in various notified utilities such as public and private sector banks, post offices, the RBI offices, and overseas deposit centers.
- However, some of these utilities were given a longer window for the exchange. NRIs got an extension till March 2017. Furthermore, many people with foreign contacts and dubious means claimed to exchange old notes for a ‘fee’. This helped many shell (benami) companies and black-money hoarders to get over to the ‘clean’ side.
- Initially, many gunny bags and drains were found riddled with burnt and torn old notes in several places of India since many people had way more black money than they legally earned.
- Moreover, several reports about arrests of touts and middlemen claiming to convert the old notes to new legitimate currency were doing the rounds of the media.
- In the most recent events, Aligarh police department seized old currency notes worth ₹ 50 lakh from a hotel. The deal was simple – pay ₹ 5 lakh to a dealer for the exchange.
- In the biggest haul, demonetized currency amounting to ₹ 96.62 crores and ₹ 25 crores was recovered in two separate incidents from Kanpur and Meerut.
Ex-Fin Minister, P. Chidambaram had astutely pointed out, “RBI ‘gained’ Rs 16000 crore, but ‘lost’ Rs 21000 crore in printing new notes! The economists deserve Nobel Prize” and “99% notes legally exchanged! Was demonetization a scheme designed to convert black money into white?”
Where is the loophole?
The answer is Nepal.
- Our finance ministry still allowed Nepal’s apex bank, Nepal Rastra Bank, to exchange old notes even after the exchange window closed in India and for NRIs of other countries. Even as of now, RBI hasn’t been able to bring in the bulk of those invalidated notes from Nepal. They simply haven’t formulated a plan on how to do it!
- Surprisingly, there is no proper statement by the RBI as to how much Indian currency is running within Nepal. Our sources reveal that Nepali people still refuse the new notes and the old notes are still in vogue.
- Apparently, many hotels and casinos in Nepal are still accepting the old notes in exchange for a fee and some touts are giving them legal Nepali currency in exchange for old and new Indian currency (because Indian currency holds more value).
- Hordes of Indians in the guise of tourists are going to Nepal and exchanging old 500 notes for ₹ ₹ 300 – ₹ 400 and new ₹ 2000 notes for up to ₹ 800 and ₹ 1000.
Now you know where a huge bulk of that elusive 1% is lying hidden. Since both Nepal and RBI have not discussed the modalities of the process to bring the demonetized money back from Nepal, you the hapless Indian citizen is left wondering as to why you didn’t get a longer window to get notes exchanged at your own convenience.
We all stood in line for exchanging old notes and outside ATMs in the cold winters to get new notes, haven’t we? Now it is up to you to decide if demonetization was a success or a sham? Let us know in the comments section. We welcome your feedback.