Money trail will lead to tax evaders: 5 things RBI report numbers indicate

It is now clear that some key members of the govt overestimated demonetisation's short-term gains

1. With 99 per cent of the banned Rs 1,000 and Rs 500 notes back in the banking system, it is now clear that at least some key figures in the government had overestimated the short-term gains of the demonetisation drive. The line of thinking was that at least Rs 3-4 lakh crore won’t return to banks, as black money hoarders would be too scared to disclose their income. 

2. It also shows, as one economist says, the “structured and effective way the money mules worked” during demonetisation. A lot of people from low-income group allegedly deposited money in their accounts on behalf of tax evaders in return of a fat commission. The government managed to tackle some syndicates, but these were virtually unstoppable. 

3. The money trail that has been generated after demonetisation will lead the government and tax authorities to the doorsteps of tax evaders. This is already evident with the widening tax net. 

4. Cost of demonetisation far exceeded the direct monetary gain, if any. For example, the central bank incurred about Rs 7,965 crore in printing new notes, against Rs 3,421 crore a year ago. Also, there would be logistics cost plus cost incurred by the banking system. 

5. The reserve money position fell 13 per cent for the first time since 1952, indicating a drop in RBI’s seigniorage income. It remains to be seen if the decline in seigniorage income, which is earned by printing and managing currency, will have a permanent dent, as digitisation will put cash need in the economy on a downward trajectory.