Judging demonetisation on currency returned incorrect: Government officials

NEW DELHI: Top government officials told ET that judging the success or failure of demonetisation on the basis of currency that came back to the system was "ill-informed” and "incorrect.”

They also said the government had never claimed that a specific portion of banned notes won’t come back and that the success of the scheme should be judged on its proven ability to formalise transactions and detect illegality and fraud.

These officials said the fact that almost 99% of banned Rs 500 and Rs 1,000 notes demonetised last November have returned to the system was proof that "demonetisation and its associated effects were setting the Indian economy on the right track.” The step has not only helped in formalisation of the economy, but also made it possible for the government to detect several anomalous transactions, officials quoted above said.

"The government should be credited that such a large amount of money returned to the system. This has provided an opportunity for detailed dissection and investigation into the legitimacy of the cash deposited,” a senior official said.

This official also said, "It is completely incorrect to say that black money would turn white once they are deposited in banks.” He added that the government had neither announced nor claimed that a significant amount of notes may not return but had tried its best to ensure that currency enters into the mainstream after demonetisation.

"This has not only helped in formalisation, but also helped detect a lot of anomalous transactions (which could be black money). Thus the government would not only get penalty and tax on the unaccounted money, but also bring those persons into the financial mainstream," he said.

The official quoted earlier said it was clear that money trails generated as a result of demonetization had resulted in identification on two lakh shell companies and unearthed lakhs of miss-matches in cash deposited to tax returns filed.

"As a result of demonetisation, 56 lakh new tax payers have also been added, which indicates better compliance and better tax revenues for the government. Prime Minister Narendra Modi said in his Independence Day speech, more than Rs 3 lakh crore excess money entered the financial system for the first time as a result of demonetisation. Interest rates for loans decreased significantly,” he added.

The official also said the ‘less-cash’ push of the government was succeeding and that the hoarding of unaccounted money is on a rapid decline.

"Talking of numbers, currency with the public as on August 4, as per Reserve Bank of India, was Rs 14,75,400 crore. This was a reduction on Rs 1,89,200 crore on year-on-year basis. Last year, an increase of Rs 2,37,850 crore was noted on year-on-year basis. Thus, without any restrictions, the use of currency is reducing after demonetisation,” the official said.