The main reason given by the government for demonetising high denomination notes was to curb black money. Various estimates have been made of the quantum of such money — which is not expected to be deposited in banks — ranging from Rs 3 lakh crore to Rs 5 lakh crore.
But if one goes by the deposit trends so far and the projections, the black money expected to be purged may be much less than expected.
On Tuesday, in a reply in Rajya Sabha, the Minister of State for Finance, Arjun Ram Meghwal, said that there were 17,165 million pieces of Rs 500 notes and 6,858 million pieces of Rs 1,000 notes in circulation on November 8, 2016, the day Modi made the announcement of demonetising the two high denomination notes.
The total amount of high denomination currency circulating in the system on that day was, thus, Rs 15.44 lakh crore or $225 billion (Rs 8.58 lakh crore in Rs 500 notes and Rs 6.86 lakh crore in Rs 1,000).
Although, all commercial banks in India have to maintain a portion of their deposits with the Reserve Bank of India (RBI) known as cash reserve ratio (CRR), this amount -- Rs. 4.06 lakh crore -- does not form part of money in circulation.
On November 28, the RBI announced that Rs 8.45 lakh crore or $124 billion (Rs 8,44,962 crore) in the banned high denomination notes had been deposited in the banks between November 10 and November 27. Banks were closed on November 9.
If one adds the money with banks of around Rs 65,000 crore in high denomination notes (of total money with them of approximately Rs 76,000 crore) to amount deposited by November 27, it means that almost 60 per cent of the old high denomination currencies are accounted for in 18 days.
According to experts, the amount of money exected to be deposited in the remain 33 days may well exceed the expectations if one were to go by the trends so far and may surprise the banks and the government, thus throwing to the winds the calculations about black money in circulation.
Either there's not much black money left in high denomination notes or those who have such money have already put it back into the banking system.
In any case, the calculation of Rs 3 lakh crore to Rs 5 lakh crore as black money may not stand.