Is India doing enough to detect fake notes, cited by the Prime Minister Narendra Modi as a significant reason for withdrawing 86 per cent of India’s currency, a process popularly known as “demonetisation”?
Apparently not. In 2015-16, only 16 of every 250 fake notes were detected, according to an IndiaSpend analysis of government data.
Modi cited terrorism financed by fake Indian currency as a major reason for invalidating the Rs 500 and Rs 1,000 notes that made up 86 percent of money in circulation. On November 9, in response to Telugu filmstar Nagarjuna’s tweet praising “demonetisation” — Modi tweeted: “Dear @iamnagarjuna, this step will check corruption, black money and fake currency rackets that slow our progress.”
The study estimated that fake currency worth Rs 70 crore enters circulation every year, with agencies only being able to intercept one-third of it. The detection of fake currency is carried out primarily by commercial banks, but such reporting is irregular: Only three banks — Axis, HDFC and ICICI — report about 80 per cent of fake currency detected.
In 2012, the then Finance Minister Pranab Mukherjee wrote a white paper on black money in India, which revealed that the cash component of undisclosed incomes ranged from 3.7 per cent to 7.4 per cent, based on searches conducted by the Central Board of Direct Taxes.
For instance, in financial year 2011-12, of undisclosed admitted income of Rs 9,289 crore, no more than Rs 499 crore (5.4 per cent) was found in cash, according to the white paper.
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Yechury’s claim was based on a Hindustan Times analysis of data from tax raids for the financial year 2012-13 onwards. Cash recovered was less than 6 per cent of the undisclosed income seized from tax evaders, said the newspaper.
Data from income-tax investigations between April 1 and October 31, 2016, revealed that black-money holders accepted having Rs 7,700 crore worth of unaccounted assets; of this, Rs 408 crore, or 5 per cent, was cash. The rest was invested in business, stocks, real estate and benami bank accounts, the data showed.
In 2015-16, a year that reported the largest detection of black-money, 6 per cent was cash.
“While, in the public eye, piles of cash are synonymous with corruption, we should be careful about distinguishing between the three components of black economy. The first is the underlying source of corruption. An example of this would be the high stamp duties on real estate transactions that lead to payments in cash. The second is the methods adopted for storing unaccounted wealth. An example of this would be holding assets in gold. The third element is the method through which transactions are effected. This could involve cash,” Vijay Kelkar and Ajay Shah wrote in the Mint.
“The black economy involves all three elements. Targeting unaccounted cash on one particular day is only a small part of the story.”
(In arrangement with IndiaSpend.org, a data-driven, non-profit, public interest journalism platform. Devanik Saha is an MA Gender and Development student at Institute of Development Studies, University of Sussex. The views expressed are those of IndiaSpend. Feedback at email@example.com)
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