Why govt’s demonetisation move may fail to win the war against black money | Latest News India - Hindustan Times
close_game
close_game

Why govt’s demonetisation move may fail to win the war against black money

Hindustan Times | By, New Delhi
Feb 16, 2017 07:13 AM IST

The demonetisation of Rs 500 and Rs 1,000 banknotes is unlikely to help the government suck out black money from the economy as hoarders keep a tiny portion of their ill-gotten wealth in hard cash, going by income-tax data.

The demonetisation of Rs 500 and Rs 1,000 banknotes is unlikely to help the government suck out black money from the economy as hoarders keep a tiny portion of their ill-gotten wealth in hard cash, going by income-tax data.

A resident hands a Rs 500 note to a money lender at his shop in Hyderabad on November 9, as he seeks to exchange it for lesser denominations.(AFP)
A resident hands a Rs 500 note to a money lender at his shop in Hyderabad on November 9, as he seeks to exchange it for lesser denominations.(AFP)

Cash recovery has been less than 6% of the undisclosed income seized from tax evaders, shows an HT analysis of data from tax raids from financial year 2012-13 onwards.

Hindustan Times - your fastest source for breaking news! Read now.

In a move that received a mixed response, Prime Minister Narendra Modi announced on Tuesday night a recall of the two currency denominations and set a 50-day deadline to exchange old banknotes with new at banks and post offices. Critics argued the move would do little to unearth black money hoarded by the rich who park their cash in different asset classes than keep it idle.

Tax data seem to bear that out. For instance, in income-tax probes from April 1 to October 31 this financial year, black-money holders accepted having stashed Rs 7,700 crore worth of ill-gotten assets. The cash component was merely Rs 408 crore or 5%. The remaining was invested in business, stocks, real estate and benami bank accounts, the data show. Financial year 2015-16 saw the highest black-money detection in the period, of which 6% was cash.

The actual proportion of cash would be even lower as the tax department’s classification of seizures considers currency and ornaments as one unit.

Read: Banks struggle to handle panicked customers, ATMs run dry within hours

One of the reasons why tax evaders and corrupt public officials prefer not to stash cash could be the sheer logistics of it. Rs 1 crore in Rs 1,000 notes, if stashed evenly, occupies one sq ft and weighs 13 kg. Rs 100 crore would weigh 1.3 tons and occupy an area the size of a three-wheeler goods carrier, making the movement of cash without detection difficult.

Ill-gotten wealth mostly enters the formal economic system through real estate and shell companies, a finance ministry source said.

HT reported on Thursday the currency switch could result in hardship for low-income groups as only 28%-32% of Indians have access to financial institutions, including post offices and banks. Further, 33% of the 138,626 bank branches are in 60 Tier-1 and Tier-2 cities, leaving rural India at a huge disadvantage.

(This story was first published on November 12, 2016)

Read: Rs 500, Rs 1000 notes scrapped: 25 things RBI wants you to know

Unveiling Elections 2024: The Big Picture', a fresh segment in HT's talk show 'The Interview with Kumkum Chadha', where leaders across the political spectrum discuss the upcoming general elections. Watch now!

Get Current Updates on India News, Election 2024, Mukhtar Ansari Death News Live, Bihar Board 10th Result 2024 Live along with Latest News and Top Headlines from India and around the world.
SHARE THIS ARTICLE ON
Share this article
  • ABOUT THE AUTHOR
    author-default-90x90

    Appu Esthose Suresh was part of Hindustan Times’ nationwide network of correspondents that brings news, analysis and information to its readers. He no longer works with the Hindustan Times.

SHARE
Story Saved
Live Score
OPEN APP
Saved Articles
Following
My Reads
Sign out
New Delhi 0C
Friday, March 29, 2024
Start 14 Days Free Trial Subscribe Now
Follow Us On