RBI clueless about how much black money demonetization removed
RBI stated to a parliamentary panel that it had "no information" on the amount of black money removed because of demonetization. There was also no information about the unaccounted money that was legitimized by exchanging old currency. It said that Rs. 15.28 lakh crore in junked notes that came back would be "subject to future corrections based on verification process".
On 8 November, the government outlawed old Rs. 500 and Rs. 1,000 currency to weed out black money. The old notes were permitted to be kept in banks, and unusual deposits came under income tax investigation. The government replaced the old Rs. 500 notes, however, no replacement was introduced for Rs. 1,000 notes. Post the note ban, a new Rs. 2,000 note was introduced.
In his Independence Day speech, Modi said "Rs. 1.25 lakh crore of black money has been detected. He added that Rs. 3 lakh crore has come into the banking system after demonetization".
The RBI website announced that roughly 99% of the demonetized Rs. 1000 currency notes had returned into the banking system. By late March 2017, RBI had said Rs. 8,925 crore in Rs. 1,000 notes were in 'circulation'. These were the currency "held outside Reserve Bank" by the public, banks treasuries etc. This suggests that only 1.3% of the notes were not returned after 8 November.
The CPI(M) and Congress were up in arms against Prime Minister Narendra Modi after RBI revealed that "Rs. 15.28 lakh crore or 99 per cent of the Rs. 15.44 lakh crore scrapped currency notes" had returned into the system post demonetization. CPI (M) General Secretary Yechury called demonetization an "anti-national act", asking "all this for what". Opposition said this clearly indicated that demonetization failed.
While the RBI did not have numbers to prove if demonetization removed any black money, it was neither very clear about its result on the "informal and unorganized sector, as also about the GDP loss". The RBI said the decline in overall financial growth for 2016-17 had started "much before demonetization" due to the instability in "industrial and services sector".