Lots of black money back in the system, says Jaitley a day after RBI report

The Finance Minister also backed the Modi government's drive to merge state-owned banks

A day after the Reserve Bank of India’s annual report stated that 99 per cent of high-value demonetised notes had come back into the system, Finance Minister Arun Jaitley reiterated his note ban defence and said that illegitimate, unaccounted wealth had also found its way back.

“It was clear that overwhelmingly large amount of black money has come back into the banking system, something that was of consequence to us in the government,” Jaitley said at an event organized by The Economist in New Delhi on Thursday.

“As demonetisation progressed and the monies were deposited it was quite clear that people have found ways and means, legitimately or otherwise, to get the money into the banking system, irrespective of the consequences they will face later,” he said.

The minister said that while it was natural to speculate how much money has come back, the fallout from demonetisation was on predicted lines and that more people have now been compelled to come into the tax net.

“It means that the anonymity around the money which was otherwise floating in the system has come to an end. The money got identified with the owner. And henceforth he was fixed with explaining the liability of the money,” Jaitley said.

On Wednesday, the RBI disclosed that only one per cent of the Rs 15.44 lakh crore worth of currency notes that had been scrapped in November last year had not come back to the central bank. Almost 99 per cent or Rs 15.28 lakh crore of demonetised notes had returned as on June 30, 2017.

Jaitley had then attacked the critics of demonetisation and said that notes returning to the system were not a parameter to judge demonetisation. “The real objective of demonetisation was formalisation, attack on black money, less cash currency, bigger tax base, digitisation, a blow to terrorism. And we do believe that in each of these areas, the effect of digitization has been extremely positive,” he had said at a media briefing last evening.

At Thursday’s event, the Finance Minister also backed Modi government’s drive to merge state-owned banks. “We don't need so many public sector banks. We need fewer but stronger banks,” he said, adding that the centre was open to recapitalising banks further provided that resources were available. He also said banks will raise capital from the markets.

However, Jaitley added that outright privatisation of state-owned banks is not on the government’s agenda. “There is a time in every country for a particular reform and you need a much larger political consensus for that kind of a reform and I don't think in India we have reached that stage. About the future I really can't say,” he said.