Black money: It could be Rs 3 lakh crore or Rs 7.3 lakh crore, says Economic Survey

MUMBAI: The amount of potential black money in the system could be Rs 3 lakh crore or Rs 7.3 lakh crore, says the Economic Survey.

To estimate amount of black money, the Survey has used assumptions of soil rates - rate at which notes are considered to be too damaged to use and have been returned to the central bank - of other countries.

The survey has used assumptions of soil notes of other countries to arrive at the number. “Using relative soil rates for the $50 and $20 notes and applying them to comparable Indian high denomination notes, yields an estimate of the amount not used for transactions, and hence potentially black, of about Rs 3 lakh crore,” said the Economic Survey in Demonitisation: to Defy or Demonitise. Rs 3 lakh crore represents 2% of the GDP.


Other way to estimate black money is to assume that all these notes should soil at the same rate, if they were really being used for transactions it would yield an estimate of money that is not used for transactions at Rs 7.3 lakh crore. The survey however, says that this assumption would be extreme given lower soil rates of high denomination notes.

Low denomination notes have highest soil rate. As per RBI data, low denomination notes have a soil rate of 33 percent per year, Rs 500 note 22 percent, and the Rs 1000 just 11 percent.

The government had demonitised two largest denomination notes- Rs 1000 and Rs 500 from November 8, taking away 86% of the currency from the system. This was aimed to curb corruption, counterfeiting, terror funding and accumulation of black money. RBI governor Urijit Patel had informed a parliamentary committee on January 18 that it had issued Rs 9.2 lakh crore of new currencies since November 8.

Several studies have been undertaken over the past 50-55 years to estimate and tackle the black money problem. But they have failed to throw up an official estimate of such money in the system. The 2012 white paper states that financial markets, public procurement, non-profit sector, unorganised sector and cash economy are more prone to black money creation.

There is no other estimate of the amount of black money that could have come out from the recent measure of doing away with Rs 500 and Rs 1,000 notes that exist in the form of cash.

In the past, there have been specific measures to address black money generated such as banning participatory notes, which was perceived to be facilitating conversion of black money into white, liberalisation of gold imports and gold bond schemes.