Black Money - Who's responsible to avoid this

Hello friends.... Happy to be back with yet another blog.  Time permitting and my mind working as well as it should,  decided to bombard you all with a new blog every week.😃

We all understand and agree that Black Money is one of the biggest problem in this country and we all scream that the Government should do something to eradicate black money.

This blog can be considered as a sequel for my previous blog on Demonetization, which can be found at: https://eskay-blogs.blogspot.com/2018/09/demonetization-was-it-right-thing-to-do.html

The common misconception among general public is that black money is mainly being hoarded by politicians, cine actors and such.  Aren't there common man, with whom we interact on a daily basis, who's earning in black and do not disclose the actual income to the Government?

Let us see some of the statistics about Income Tax before we get into the specifics of how common public also involved in the generation of black money.

As per the Chairman of Central Board of Direct Taxes (CBDT), for the FY2017, total number of Income Tax assesses in India was around 6.26 crores.  Earlier year (FY 2016) it was only around 4 crore.  So, for FY 2017 there has been almost 50% jump in the number of assesses (source: https://www.deccanchronicle.com/business/economy/250717/number-of-taxpayers-in-india-goes-up-from-4-crore-to-626-crore-in-fy17.html).   

Out of this 6.26 crore assesses, only about 24.40 lakh individuals/entities have declared their income to be in excess of Rs.10 Lakh a year (that's only 3.90% of the assesses earn more than Rs.10 lakh a year).  The other factor to wonder is total number of cars bought by Indians in 2016 (since we are considering the IT returns for FY 2017, I am taking the figures for 2016) was 36.69 lakhs.  Out of this at least about 40,000 cars are high-end luxury cars.  Don't we think there's a disparity here between what assesses declare as income compared to what they spend?

Now, the concept of Black Money and the huge sums held in black money are unfortunately not new to India.  Below is the statistics of black money estimated in India:

• FY 1975-76   -  Rs. 11,870 Crores (about 18% of India's GDP)
• FY 1980-81   -  Rs. 23,678 Crores (about 20% of India's GDP)
• FY 1983-84   -  Rs. 36,784 Crores (about 21% of India's GDP)

The above figures are from the White Paper prepared by the then Finance Minister Mr. Pranab Mukherjee in May 2012 in a 108 page document and submitted in the Indian Parliament based on RBI's white paper submitted to Finance Ministry. (source: http://www.prsindia.org/uploads/media/White%20Paper%20Black%20Money/WhitePaper_BackMoney2012.pdf).  The best part is after submitting this report in May 2012, Mr. Mukherjee was removed from FM post in June 2012.  I think it should be a coincidence!!!

RBI's white paper submitted to Finance Ministry and Indian Parliament regarding Black Money, ways to curb black money and other details can be found at: https://www.incometaxindia.gov.in/Communications/Circular/910110000000000365.htm.  This study is almost in line with the above referred White Paper submitted by Finance Ministry.  This white paper by RBI is almost about 50 pages long.

For the FY 1994-95, India's black money was estimated at Rs.1,10,000 Crores (by Parliamentary Standing Committee on Finance).  Prof. Madhu Dandavate (then Dy. Chairman of Planning Commission) estimated this figure to be Rs.80,000 Crores.

Dr. Poonam Gupta and Sanjeev Gupta conducted a study and concluded that NIPFP (National Institute of Public Finance and Policy) has underestimated the circulation of black money and have stated the following to be the 'best estimate' of black money in India (source: http://www.yourarticlelibrary.com/india-2/black-money/parallel-economy-and-estimates-of-black-income-in-india/63014/):

• FY 1980-81  - Rs.    50,977 Crores (41.70% of GNP)
• FY 1983-84  - Rs.    85,208 Crores (45.80% of GNP)
• FY 1987-88  - Rs. 1,47,297 Crores (51.70% of GNP)

You can search the Internet and see which party was in power and who was the Finance Minister during these periods.

If we have to blame a particular political party for black money in the country, during the above periods the country was ruled by Congress.  As you can see from the data, Black Money in India grew exponentially during the Congress Government.  Black Money monster was created and later no government were able to beat the monster.  I leave this at this as I don't want to get more political.

Currently, India's black money is estimated at Rs. 37,94,530 Crores, which is about 25% of the country's GDP.  As India's economy was growing, black money also grew.  The only comforting data in this is black money was 21% of GDP in 1983-84 but only 25% in 2015-16 even though the volume of money is quite huge (as the economy grew).

We can categorize the black money in two parts for better understanding.  To do this, let us consider black money in following two categories:

1. Large lump-sum money taken by politicians and others as kickback for various things.  This type of money mostly never enters the black economy.  Normally these are big sums (like 500 crores, 1,000 crores, etc.).  This money is deposited or invested in foreign countries, which are tax havens and do not ask any question about the source or origin of fund.  These kickbacks are common Indian public's money and could have very well been spent for India's development.  The only advantage (the better of these two evils) is that, this money is not in black economy and does not multiply within the Indian economy.
2. The second part is the black money held by individuals, companies, corporations, etc.  This type of black money is used in everyday business transactions.  As people/companies/traders do business with this black money, it earns them profit and such profits (again profits are also black money as nothing is recorded in book and are cash dealings only) are again reinvested in business thus the black market economy keeps growing and competes with the country's GDP.

To understand the quantum of black money stashed abroad (as described in point # 1 above), see below:

An estimate by Washington-based research and advocacy group Global Financial Integrity in its report "Illicit Financial Flows from Developing Countries: 2003-2012", suggests that around US$ 439.60 billion of black money left Indian shores, between 2003 and 2012.  US$ 439.60 billion is equivalent to Rs. 26,38,000 CRORES.  This is during a nine year period between 2003 and 2012.

Out of this Rs.26,38,000 Crores at least 95% of it would be the money sent abroad by politicians and their families.  The balance 5% could be from big corporations and business houses.  If this much volume of money was sent in nine years, what would be the total quantum of black money stashed abroad since Independence???  (source: http://indpaedia.com/ind/index.php/Black_money:_India).

Now, for the black money in circulation within India (parallel economy), let us consider the following:

Total earning population in India (employed and self-employed put together) is around 67.72 crore out of this about 16.42 crore is engaged in Agricultural sector and hence we will leave them from taxable income group.  That leaves us with about 51.30 crore earning individuals in this country.  If we have only 6.26 crore assesses, that's only 12.20% of the earning individuals in this country.  Are we saying 87.80% of earning individuals earn less than Rs.2,50,000 a year (if you earn Rs.2.50 lakh or less per year, you need not pay tax)?  I don't think this is true.

Now, coming to our blog topic, how all black money is generated and in what sectors.  Let us ponder the below:

1. Real Estate / Construction: The first and foremost sector were lot of cash deal happens is real estate.  To a greater extent we have to blame the Government also for this as the property value is grossly undermined as per government records.  The properties do have "Guideline value" and "market value".  Guideline value is the value for the property in that particular locality fixed by the Government.  In most cases, guideline value is about 50% to 70% lower than the market value.  As buyer, you cannot register the property for actual value as it will be far higher than the guideline value.  So even an honest person is forced to deal in black money.  This is the reason real estate market took a big hit after demonetization.  For calculation purposes, let us conservatively assume only Rs.10,00,000 Crores of black money is involved in this industry.
2. Private Loan sharks: A lot of small businesses/individuals and others borrow money from local loan sharks.  The interest rates charged by these lenders varies from about 3% per month to about 8% per month.  Let us assume an individual loan shark has Rs.5,00,000 to lend and he lends this money at 5% interest per month.  In a year his Rs.5 Lakhs black money would have earned him Rs. 3 Lakhs in interest.  So by end of the first year, he has Rs.8 Lakhs black money.  If he keeps lending money (including the interest earned), within 3 years, his initial black money of Rs. 5 Lakhs would become at least around Rs. 15 lakhs or more.  Let us assume in entire India we have only about 1,00,000 such private loan sharks and assume they each have only about Rs.15 Lakhs, that's about Rs. 15,00,000 Crores of black money (again this is a very conservative estimate).
3. Professional fees in cash:  The biggest section of professionals who prefer the fee to be paid in cash are advocates.  As per Bar Council of India (BCI), it is estimated that India has about 15,00,000 lawyers.  On an average, let us assume even 50% of them take Rs.500 (bare minimum) per day in cash as their fee and only 100 days a year this happens (very very conservative estimate).  This will work out to Rs. 3,750 Crores per year.  Do you think this much amount received in cash is declared by these lawyers as their income and proper tax is paid?  Another scary data is that, as per BCI, at least 20% of the lawyers practicing in India are fake and do not have proper degree (or completed it).  This was informed to Chief Justice of India by BCI.   You can now guess the amount of black money only this section of the society is creating every year.
4. Other consultants / professionals: In a big country like India, there are many number of professional consultants viz., Sales Tax Consultant, IT Consultant, Chartered Accountants, agents for customs and the like.  Let us assume India has about 3,00,000 such consultants (CA's alone are 1,25,000 who are in full-time practice) who provide various service to the business community and individuals.   Let us assume these professionals/consultants, on an average, take Rs. 250 a day and work only for about 200 days in a year.  That's about Rs.750 Crores a year by these professionals.  This is a bare minimum and very optimistic estimate.
5. Restaurants / Dhabas and other eateries: As of 2010, it was said that the reported turnover of restaurants and hotels in India was Rs. 43,000 Crores with a growth rate of 15-20% every year.  Of course, this does not include the roadside eateries / Dhabas and other small outlets.  Let us assume that India's current spending in restaurants and other eateries are around Rs.50,000 Crores (as reported to authorities) and I would strongly believe that there will be at least 15% of this as unreported sales.  That's about Rs. 7,500 Crores a year as undisclosed sales (in cash).  Many small roadside eateries and fast food joints do good business and for our estimation let us consider it is only around 50,000 such eateries in the country and each one of them make about Rs.500 a day in profit (cash sales).  That's about Rs. 912 Crores a year in black money.
6. Cinema Industry:  This is another giant of an industry revolving in handling a lot of black money.  Not just the highly paid actors but also the producers and others.  There are private loan sharks who offer finance to the film industry at an exorbitantly high interest rates, as high as 15-20% interest a month.  As of 2017, Indian Film Industry was valued at a Rs. 19,200 Crores.  This is only the official estimate and does not take into consideration the amounts paid and received in black.  It would be very safe to assume that this industry (to the actors, loan sharks, etc.) at least contributes Rs.3,000 to Rs.4,000 Crores a year in black (about 20% of the value of the cinema industry, which is a conservative estimate).
7. Logistics Industry:  In this category, let us forget about all other components of the logistics and concentrate only on the transportation part.  As of 2013, India's road transport network contributed about 4.90% of the country's GDP.  Remember, India's worst growth of GDP was for the FY 2012-13.  If Road Transport industry (mainly private owned as Government owned Road Transport network is very minimal) contributed 4.90% of GDP in FY2012-13, it should be around Rs. 7,43,727 Crores a year.  Let us assume these transport companies have hidden only about 5% of their turnover from the authorities (got paid in cash and didn't declare in the IT returns), it will be around Rs. 37,186 Crores a year.  Again, this is a conservative estimate as number of transportation companies operating in India are quite high.  Refer https://web.iima.ac.in/assets/snippets/workingpaperpdf/12319057932015-12-02.pdf for some good "bedtime reading" prepared by IIM, Ahmedabad to understand the Indian Logistics industry better.
8. Small Businesses: This category is probably the huge in terms of number as I want to cover the corner provision store, tea shop, supermarket, private transportation business (non-goods carrier) and the like.  Let us assume there are only about 1,00,000 such entities in India, who's daily profit is in the range of Rs.500 and do not disclose their actual turnover/profit to the Government.  This alone makes it about Rs. 1,825 Crores a year in black money.

After reading this far, you all would agree that the above are all quite a conservative estimate.  We have not included few other categories of professionals, like doctors, in our calculation above. Without going into any further division of businesses dealing in black money, let us consolidate the above sections of the society and see how much black money is being generated a year.

From above, it is evident that about Rs.25,48,423 Crores of black money is generated and in circulation in a year by the industry.  Looking at the statistics I have provided in my earlier blogs (average black economy in India is estimated at Rs.37,94,530 crores), I now confidently believe that this figure is conservative and I won't be surprised if black money generated in these sectors are much more than what I have estimated here.  As every figures has the keyword "estimated".

Now, as you can evidently see apart from politicians, there are lot of common public involved in creating this black money and we can't keep blaming the Government for everything if we, common public, are involved in creating/helping to create black money.  We, common public, have to understand that black money has very big negative impact on the country's economy and we look up at the Government for everything.  If we need the Government to provide a-z of our needs, then it's our duty to ensure we declare our actual income and pay the government the statutory dues as it generates more revenue.

As a friend of mine said, there's no point in talking about the problems and giving facts and figures to substantiate the problem.  Rather, we need solutions so that black economy has been considerably reduced quickly, which can help the nation in a big way.  Below are the measures I feel the Government and common public can adopt in order to curb this monster which is threatening our country.

• Real Estate - Government should come up with policy of removing the guideline value, market value and such.  If I own a property and I want to sell it for Rs. 2 crores and buyer is willing to pay me that price (even though guideline value is only about Rs.1 crore or so), I should be able to sell it for Rs. 2 crores and register the sale for full amount.  In order to implement this, Government should also reduce the stamp duty for registration of property sale.  Instead of current 7%+1% (in Tamil Nadu), let the Government say the buyer has to pay about 2% of the value of the property.  This will definitely help the common man a lot.  An average person who wants to apply for a loan and buy property (they are the majority in this country) will benefit a lot as banks will give only about 80% of the registered value of the property.  I believe there are quite a few individuals who will agree and will happily do this if implemented by Government.
• Income Tax - The current slab of no tax for income of Rs.2,50,000 or less a year should be raised.  We all know a family of three (husband, wife and a child) cannot live comfortably with an income of about Rs. 21,000 a month, particularly in urban areas.  For example, in Chennai city a decent house will cost you about Rs.8,000 - Rs.10,000 a month in rent.  If you have to pay 50% of your salary/earning a month towards rent, what will be left to run the family?  The system of Income Tax should get a complete overhaul as there are far too many parameters involved.  Let us assume, that I earn about Rs. 25,000 a month and have four dependents and my neighbor earns the same but have only one dependent, is it fair for us both to pay same tax?  I will have to borrow money to pay tax (same applies between same income individuals living in urban and rural area).  So, to be fair on the common public and to generate more revenue to the Government, the system of taxation have to be completely overhauled (many Western countries do follow taxation based on your marital status, dependents, etc.).  This will need a lot of time and energy, even by the Government, but I believe if done, will benefit the Government and common public in the long run and far too many people who evade tax today (because they can't afford it), will happily declare the income and pay. 
• Digital Transactions - Common public should try and use digital payments as much as possible (credit/debit card, online payments, payment gateways like PayTm, Airtel Money, etc.).  If we start this practice with many small outlets like restaurants, supermarkets, etc. we can reduce number of undisclosed transactions by them.  When they collect cash and do not disclose it, they just don't pocket the money we paid for goods but also the taxes they collected with it, so it's double dipping by these establishments.  It's very common that many people have debit/credit cards.  As of January 2018, Indians were having 3.62 crore credit cards and about 84.67 crore debit cards.  In order for public to use Debit/Credit cards more, Government should consider reducing bank charges for usage of debit cards and also lower the minimum balance requirements, even make the SB accounts as zero balance accounts.  Electronic payment options and payment through debit/credit card have increased significantly post demonetization of Rs.500 and Rs.1,000 notes (source: http://www.mbauniverse.com/group-discussion/topic/business-economy/demonetisation).  If we start using electronic payment options more and more, instead of cash, it will reduce black money generation quite considerably.
• No more high denomination currency notes - This may sound ridiculous but actually it will be very useful to do away with Rs.500 and Rs. 2,000 notes.  Rs. 200 note should be the high denomination note of Indian currency.  If we have high denomination note like Rs.2,000 it is very easy to carry Rs.4,00,000 (for example) as you can put 1 bundle of Rs.2,000 note in each pocket of your trousers.  Similarly, in a person's wallet it's very easy to carry around Rs.20K to Rs.50K with high denomination notes.  However, if Rs.200 is the high denomination note, imagine loan sharks roaming around with suitcases to carry Rs. 5 Lakh or so which they want to lend at high interest rates.  Doing this will also reduce the exposure due to fake notes.  If 100 fake notes of Rs.2000 notes enter Indian market, that Rs. 2 Lakhs, whereas this is not possible when high denomination note is only Rs.200.  Also, number of fake currency note printers will reduce as producing lower denomination note to match original quality will be expensive.  USA does not have dollar bill beyond $100.  Euro has only 200Euro note as highest denomination (they are withdrawing 500 Euro bill in circulation this year).
• Regulation on cash withdrawal/deposits in bank account - Government should impose restriction for cash transaction in bank accounts based on the minimum balance maintained by the account holder.  For example, if the average monthly balance in my business account was Rs.1 Lakh, I should not be allowed to withdraw or deposit more than Rs.50K in cash (50% of the minimum balance).  Again, this has to be dynamic depending on the size of the business unit and balance they hold in their account. This way, it can ensure suddenly I do not deposit a large sum of money claiming to be business earning or able to withdraw a huge sum to pay off some 'under the table' transaction.
• Establishing more banking facility - Much more banking channels should be open and accessible to the general public, particularly in rural areas and huge markets in India to make them deposit all cash sales money in their account before leaving the market.  The reason I am suggesting this is, on an average Koyambedu Wholesale market in Chennai (fruits, vegetables, flowers and provision) has a turnover of around Rs. 3 to 4 crores per day.  I would assume at least 90% of this (if not more) is cash sales.  Which means, the traders from this market walk away everyday with about Rs. 2 to Rs. 3 crore in cash!!!! Instead, Government should ask the vendors to deposit the cash daily in their account, which is linked to their PAN and AADHAR.  If one market in the country has cash sales of about Rs. 3 crores a day, imagine what will be amount when we consider overall India.  So, make things easy for vendors to deposit cash and probably even offer some incentive (like subsidy we get for paying fuel bill with debit/credit cards).
• Link all ID's into one - Since AADHAR card has been introduced and have become mandatory for many things, all Government related ID's such as PAN card, Driving License, Voter ID, Debit card and such should be linked to AADHAR.  So, for any transaction all you need is your AADHAR card.  With the current technology, it is not impossible to implement.  If you have multiple bank accounts, you should be given choice at the ATM to choose the account from which you want to withdraw or deposit.  This can also avoid people getting multiple credit cards using various means of address proofs and later not paying the dues to the bank issuing the credit card.

These are just a few major steps we need to take in order to put a clamp on the black money.  It's a huge monster in India and the fight against black money is not going to be an easy one.  If we control the amount of money in circulation in cash, automatically many other things will fall in place as people do not want to hoard huge amount of black money in Rs.100 and Rs.200 denominations.

Now, as I stated earlier, a common man with not much of experience/qualification in economy can suggest some ideas here, doesn't the brilliant minds of economists and financial experts in the Government doesn't know the measures to effectively control the black money?  I believe they do and I think nobody in the political system wants to start this as they are afraid of losing the vote bank as black money hoarders and people circumventing the system to evade taxes are becoming a majority.  So, as I always believe, this revolution against black money should also start from public to force the Government to implement measures to curb black money.

As I mentioned earlier, any economic decision in a vast country like India is not going to happen overnight and we may not see positive results for about two years.  However, given the seriousness of black money in India, it's high time we take these steps to initially control and gradually to eradicate black money.

Black Money in India has gone much deeper into the system.  Efforts to control and remove black money, which has so deeply engrossed in the economy is going to be a very painful process but this painful surgery is much needed to save the patient (Indian economy).

Demonetization - Was it the right thing to do?

Hello friends..  Happy to meet you all with yet another blog.

First off, a big thank you to all who take interest in my blog and read, share and comment on them.  This really encourages me to read, analyze and write more.

On one particular topic, far too many news is making rounds in social media and also becoming topic of spiteful conversation against the current government is Demonetization of old Rs.500 and Rs.1,000 notes and introducing the new Rs.500 and Rs.2,000 notes.

Many common public think it's unwarranted and uncalled for and it has created far more problems than it has solved.  Is that true?  Will the Government, Finance Ministry and other departments do such a big blunder, which common man thinks as stupid idea?  I guess not.  So, let us see what forced the Government to take this decision and try to rationalize this decision.

RBI's annual report indicated number of fake currency notes deducted by the banking system as:

• FY 2013-14 - 4,88,273 notes
• FY 2014-15 - 5,94,446 notes
• FY 2015-16 - 6,32,926 notes

Above were the number of currency notes deducted by the banks/RBI and does NOT include the fake currency notes seized by law enforcement agencies, intelligence, BSF, Police and other agencies.  The above numbers does NOT include number of fake currency notes which were in circulation among common public (the notes never got deposited in banks or found to be fake by receiver of such note).

So, let us try and see how much money did public lose due to fake currency as banks will not return the fake currency note or exchange it.  For this calculation purpose, let us assume all the above notes were Rs.500 notes and no Rs.1,000 notes were given to bank by public (even though % of Rs.1,000 notes on above will be significant).  Below is what the general public lost due to fake currency:

• FY 2013-14 - Rs. 24.41 Crores
• FY 2014-15 - Rs. 29.72 Crores
• FY 2015-16 - Rs. 31.65 Crores

Over a period of three years, general public lost almost Rs.86 crores of their hard earned money as unknowingly (or few individuals, knowingly in order cheat the system and Government) they have received fake currency.

Isn't this a huge amount for common man to lose?  We have the tendency to blame the Government for everything.  But in this case, who is to be blamed?  What's the solution to flush out fake currency notes out of system?  Only way to do it immediately is to make the existing high denomination notes as invalid and replace them with newer version of notes.

In all reality, I won't even call this as demonetization but rather call it "re monetization" as it simply replaced the old high denomination currency notes with new ones (Rs. 500 note was replaced with a new version and Rs.1,000 note was replaced with new Rs.2,000 note).

Demonetization is not new to India.  Previously in 1946 and 1978 India has demonetized the existing currency notes. 

A study conducted prior to recent demonetization - "Estimation of the Quantum of FICN in circulation by the Indian Statistical Institute (ISI), Kolkata along with National Investigation Agency (NIA), which has asked the Government to take immediate steps against counterfeiting as this numbers are only indicative of the extent of menace.  

The study of ISI, Kolkata pointed out that FICN worth Rs.70 crores are inserted into the Indian market every year.  The law enforcement agencies were only able to intercept about one third of them.  This study was accepted by the Ministry of Home Affairs (MHA).  Not just this menace of fake currency printed by non-government agencies (both in India and abroad), even RBI had it's share of printing and circulating currency notes with mistakes, which can also be treated as fake notes.  But luckily, since RBI knew the series and numbers of these notes, these notes can at least be exchanged unlike the fake currency notes.  Refer https://www.pressreader.com/india/alive/20170920/282080572023590 for more detailed information.

Now, another major reason for this demonetization was to eliminate black money from the economy.  Many common public are crying out loud that this demonetization has never eradicated black money from the system.  Is that true?  Again, did the Government, Finance Ministry and all other departments in the Government failed to see what the common public standing in street corner saw?

Here's some numbers to ponder.  Based on various studies and report by Bank of America-Meryll Lynch estimated the numbers as below:

• India's Nominal GDP (estimate) - Rs. 1,51,78,100 Crores
• Black Economy (25% of GDP)   - Rs.    37,94,530 Crores

Can you believe a quarter of India's GDP was in black market?  Add to this the counterfeit currency in circulation, it was almost a parallel economy running.  This economy does not pay tax but get benefits from Government on anything and everything possible. 

While talking to many of my friends, who are in finance sector and banking, they all unanimously agreed on one thing that India's parallel economy was at least 20% India's GDP and within next 5 years, parallel economy would have almost been in par with the real economy.  What a scary situation this is?  We are a democratic country with elected Government but few money monsters were literally running an economy competing with the democratic government.

RBI themselves have stated that 98.96% of demonetized Rs.500 and Rs.1,000 notes were received by them after demonetization was announced.  Now, based on this figure of 98.96% only, the common man is crying that black money was never discovered or eradicated.  If our parallel economy was almost 25% of GDP and after demonetization was announced, RBI recovered almost 99% of the old currency, it means that people who were holding black money in Rs.500 and Rs.1,000 notes have deposited it in the bank either directly in their accounts (thinking of fighting the consequences later) or through "benami" sources (accounts of friends, acquaintances, relatives, employees, etc.).

Rs. 26,000 crore was deposited in Jhan Dhan bank accounts two weeks after the announcement of demonetization. 69 lakh new Jhan Dhan accounts were opened after demonetization.  So, black money hoarders used common public and deposited small amounts into various Jhan Dhan accounts and thus Rs. 26,000 crores worth old currency notes were deposited in bank through benami sources.

RBI found that Rs.2,80,000 crores to Rs.4,30,000 crores were deposited after demonetization in various bank accounts by individuals and business establishments (RBI was still analyzing the deposits when this report was published).  Prior to demonetization these accounts did not have much activity and big balance.

Now all these deposits (26,000 crores in Jhan Dhan account and other deposits of unusual size) show that black money has come into the normal economy, as white, into bank accounts.  All of us would have read news articles regarding number of Income Tax notices served to show source for unusual deposits and number of companies came under radar by Ministry of Corporate Affairs (MCA).  The demonetization brought out a lot of black money into the banking system.

Read this article at: https://www.thehindu.com/business/Economy/post-demonetisation-bank-data-reveals-5800-companies-with-13140-suspicious-accounts/article19807331.ece.  Startling amounts deposited by shell companies.  Now these accounts are non-operational except for paying the liabilities listed by the company prior to demonetization or with proper documentation.

Also, we all read and know about the crazy buying of gold, silver and other metals after demonetization.  Lot of jewelers accepted demonetized Rs.500 and Rs.1,000 notes.  Did big money sharks and politicians stand in queue at jewelry shops?  No, many of them were common people who had cash which were unaccounted for.

Another big cry from critics of demonetization is the amount of money spent in printing new currency notes.  Given the seriousness of the situation in regard to fake currency and black money, the money spent is well justified.  Another positive point on the money spent on new currency notes is that Rs.2,000 and new Rs.500 notes were printed in India at RBI's subsidiary printing unit in Mysore.  Previously, high denomination notes were printed in USA and Germany, which means we paid printing charges in foreign currency and used imported ink and paper.   German press used earlier to print high denomination currency was also printing currency notes for Pakistan.  ISI, Kolkata and NIA repeatedly warned the government that this will increase fake currency note circulation.

Even before becoming Prime Minister, Mr. Modi (during RBI's 80th anniversary) requested RBI to look into the possibility of using Indian paper and ink and print all currency notes in India.  This way, he believed we can control the number of fake currency entering the system as outside entities will not have access to our currency paper and ink.

As I always say, in a huge country like India, an economic policy and/or decision will not show results overnight.  The volume is so huge and requires quite a lot of manpower to analyze all the information and take action.  But this is the right process started to curb fake currency and black money.

Now, let us summarize the benefits (as I see it) the demonetization has contributed to Indian economy:

• Fake currency notes at least worth Rs. 100 to 200 crores became invalid overnight.  As per ISI, Kolkata and NIA's figures, about Rs.70 crore worth of fake currency notes entering every year into Indian economy became invalid including the existing ones which were in circulation. 
• Black money hoarded were deposited into bank accounts (own or others' account).  Thus even if 80% of black money held in India was deposited, that's a huge success.  Just going by above examples of deposits in Jhan Dhan accounts and other accounts, it approximately amounts to around Rs. 4,50,000 crores.
• Real estate and construction industry in India saw it's biggest downfall after demonetization.  Reason?  This industry was always working on black money.  Since people didn't have enough black money, sale of properties dropped quite badly and many construction companies are either already bankrupt or on the verge of being bankrupt.
• Companies/Individuals who deposited black money into bank accounts, have to pay tax and fine on those earlier undisclosed income.  This is crores of rupees in revenue to the Government, which was never there before.
• Unwanted but benefit to poor common man:  Lot of individuals with huge black money used bank account of others to deposit the money.  To do this, they have to pay some sort of percentage to the account holder.  So a common man, who was struggling to make ends meet, did earn something after demonetization.  Is this ethical?  No... But has happened so let us say a common to whom even Rs.5,000 was big money got it thanks to demonetization.
• Thanks to black money being deposited in bank accounts, parallel economy, which almost accounted for 25% of India's GDP has been reduced drastically.

Don't we think these are positive contributions to the country to develop it further?  Again, no change is going to be visible and benefits reaped overnight.  Change of policies and economic policy implementation takes time to see the right result.

Let us look at the numbers for the new Jhan Dhan accounts opened after announcement of demonetization.  69 lakh accounts opened and about 26,000 crores deposited.  On an average a common man opened a Jhan Dhan account and deposited about Rs.38,000 in these accounts.  These accounts were opened by common people and used by people hoarding black money.  At a later stage, these people would have withdrawn the money and given it to the actual person and took some commission for letting them use his account.  Now the individuals who had black money in old currency have black money in new currency!!! Is this right?  Ethical?  If we, general public, help black money hoarders to use our account, how can we blame the government?

I am currently working on my next blog about black money and it's menaces, which can be treated as a sequel to this blog.

Hours after Mr. Modi announced demonetization, people started queuing up in front of ATM's to withdraw cash.  What a mad choice???  ATM's doesn't know about demonetization decision and if you withdraw more than Rs.500, it is going to give you the old Rs. 500 & Rs.1000 notes.  Why such mad rush to ATM, which resulted in chaos?  While media was showing the crowd in front of ATM's and asked them why they are there, the most common reply was "Don't know what will happen tomorrow, so wanted to withdraw cash"...  Government just announced demonetization.  Didn't say they won't let you withdraw the money in your account forever...

Many people who oppose demonetization state the long queues at the bank during the demonetization period and few tragic death happened to people while waiting in the queue as failure of this move.  I was moved and deeply hurt when I heard about the deaths during this.  But can we blame demonetization for this?   What are the factors which caused that death?  No stampede was reported which resulted in death.  Nobody beat them up... For all we know, it could be death of natural causes which happened during their wait in bank line... We never know the truth as media only sensationalized and never reported facts.

If we complain about standing in queue for hours, don't we stand in queue from midnight to buy newly launched iPhone (many reports came out from India as this happened)?  Don't we stand in queue for even 12 hours to get application for our children's admission in school?  Don't we stand in queue for 4 to 6 hours in front of embassies to apply for our visa?  When first McDonald was opened in Mumbai, it was reported that people stood in queue for 2 to 3 hours to get their food.  So, for greater good of the country can't we stand in queue for few hours to deposit our cash?

Didn't bank employees work almost 14-16 hours a day and seven days a week during demonetization?  Did they do it for fun?  No, for some greater cause of developing the economy and to eradicate the black money and fake currency from the system.

Indian public believe in rumors spread in social media and panic and throng the banks and create chaos.  If general public had been little more patient to do this, many unwanted incident happened during demonetization could have been avoided.

Before publishing this blog, I wanted to recheck few figures and fact and found the site: http://www.mbauniverse.com/group-discussion/topic/business-economy/demonetisation

Below is the summary from the above web site:

After one and a half year of Demonetization, Indian Economy seems to have done away with all the negative impacts of Demonetization. The Economic Survey of India 2017-18, released just before the presentation of General Budget 2018 in Parliament has emphasized that all the negative impact of Demonetization of Rs.500 and Rs.1,000 currency notes has ended. The Demonetization was announced as a surprise on November 8, 2016.

Impact of Demonetization on Indian Economy in 2018
Economic Survey after careful review of Demonetization, which was announced one and a half year back, has found that the cash-to-GDP ratio has stabilized. It suggests a return to equilibrium:

• The Economic Survey says that India's GDP is set to grow at 7 to 7.5 percent in 2018-19. This is an increase from its prediction of 6.75 percent growth this fiscal year.
• The Economic Survey has cited exports and imports data to claim that the demonetization effect was now over. It claims that re-acceleration of export growth to 13.6 percent in the third quarter of Financial Year 2018 and deceleration of import growth to 13.1 percent is in line with global trends. This suggests that the demonetization and GST effects are receding. Services export and private remittances are also rebounding
• According to the statistics released in the Survey, the Demonetization had led to Rs 2.8 lakh crores less cash (Equivalent to 1.8% of GDP) and Rs 3.8 lakh crores less high denomination notes (Equivalent to 2.5% of GDP) in the Indian economy.
• The Economic Survey has also clarified that income tax collections have touched new high with demonetization and introduction of GST, “From about 2 percent of GDP between 2013-14 and 2015-16, they are likely to rise to 2.3 percent of GDP in 2017-18, a historic high.”

If you visit the above web site, it also lists the demerits of demonetization, but after careful reading of the demerits, I believe demonetization has achieved something bigger in the greater good of the country.  Also, this shows various price indexes, electronic transactions and other details, which all indicate that demonetization had more positive impact.

Any change in system is always painful but we should not look at the pain we face then but look at the result it can bring to the society.  When our children get hurt and we want to clean the wound, they always say "It will hurt... leave it be"... Do we leave it?  No... Leaving the wound without cleaning/applying medicine will infect and become more serious issue.  So, we tell the child to bear the pain so that it can be healed.

In my opinion, we all felt the pain of demonetization in one way or other.  But, this surgery with pain to recoup the Indian economy was far better than doing a postmortem.