Deposit of 80% of banned currency in banks raises doubts about success of demonetisation

Since the demonetisation exercise kicked off on 8 November, the total deposits in banned currency notes has inched close to Rs 11 lakh crore, according to some reports. As per the RBI, the total value of the Rs 500 and Rs 1,000 notes in circulation till March 2016 was Rs 14.18 lakh crore. Of this amount, 15,707 million comprised Rs 500 notes and 6,326 Rs 1,000 notes. This accounted for 86% of the total currencies in the system. This means that Rs 11 lakh crore would comprise nearly 80% of the total banned currency that has entered the banking system.

While announcing demonetisation, the government had claimed that it was aimed at curbing black money. However, the recent calculation is raising doubts over the purpose and efficacy of the entire exercise. With less than a month to go (30 December) till the banned currency notes can be deposited with the banks, the objective will be defeated if 90% of these are deposited.

The RBI had said that Rs 8.45 lakh crore was deposited and exchanged during 10-27 November, after the implementation of the note ban from 9 November. Between 28 and 30 November, the State Bank of India saw deposits increasing by Rs 22,000 crore. In a recent submission to the Supreme Court, the Attorney General had said that the government expected Rs 10 lakh crore back as deposits. This raises questions whether the exercise was worth carrying out at all.

Though the move was welcomed by everyone, people have faced inconvenience in withdrawing cash and carrying out transactions, especially in rural areas. This is probably the reason that the Supreme Court, on 2 December, asked the Centre to list the measures taken to ease the inconvenience of people in rural areas who are mostly dependent on cooperative banks. The Centre, in an additional affidavit, told the apex court that a substantial number of banned notes had been deposited and that the situation would ease out in the next two-three weeks.