Estimates of demonetised notes back with banks may be incorrect: RBI

MUMBAI: Reacting to media reports about the quantum of demonetised currency that has been returned to the banks, the Reserve Bank of India on Thursday said such estimates may not be correct.

The RBI said the aggregating of accounting entries made at the various currency chests still requires to be reconciled with the actual cash balances in order to eliminate accounting errors and double counting.

According to a Bloomberg report, nearly 97% of the banned notes may have been deposited, dealing a blow to Prime Minister Narendra Modi’s drive to unearth unaccounted wealth and fight corruption.

Banks have received Rs 14.97 lakh crore as of December 30, the deadline for handing in the old bank notes, the people said, asking not to be identified citing rules for speaking with the media. The government had initially estimated about Rs 5 lakh crore of the Rs 15.4 lakh crore rendered worthless by the sudden move on November 9 to remain undeclared as it may have escaped the tax net illegally, known locally as black money.

A full validation of the banned notes is a set back for Modi government who had been relying on this move to burnish his administration’s corruption fighting credentials and boost its popularity ahead of key state elections. The anti-corruption measure has dented economic growth and forced millions into lengthy bank queues, although it remains broadly popular.

“The prime minister had been ill advised and the government was not prepared to handle the situation,” said Nilakantha Rath, honorary fellow at the Indian School of Political Economy. “The government expectation has been belied.”

Private indicators published over the past week signal that the $2 trillion economy will be hurt by the cash clampdown, raising fears that a continued slowdown will strip India of its position as one of the world’s fastest-growing major economies. The Nikkei India Services Purchasing Managers’ Index shrank in December, the second straight month of contraction, a report showed.