Govt was wrong in announcing that deposits up to Rs 2.50 lakh won’t be scrutinized
By Asit Manohar
As the Reserve Bank of India (RBI) has announced officially that 99.3 percent of about Rs 16 lakh crore in the form of the banned Rs 500 and Rs 1000 notes have found their way back into the banking system has given Prime Minister Narendra Modi’s detractors the stick to beat him with. Apart from neutralizing terrorists’ funds suspected to be largely held in these two high denominations notes — Rs 500, Rs 1,000 — and stopping counterfeit currency note industry patronized by Pakistan, the major objective of demonetization announced at 8 PM on 8 November 2016 by Modi was to unearth black money largely suspected to have been hoarded in high denomination notes.
Such hoarders of national currencies seem to have found the easiest expedient — go deposit in banks in their own and friends’ names after the government closed the exchange window on 25 November 2016 thus leaving them with the only other option of depositing the notes into bank accounts by 31st December 2016. One doesn’t know how much was laundered through the exchange window while it lasted. There were reports of blue collared workers striking it rich by repeatedly standing before the exchange windows of various banks fronting for the black money owners. There were a few other official windows as well — hospitals and petrol pumps among others were allowed to accept the old notes. One wonders if they have been investigated for their possible handmaiden roles. For example, if a petrol pump normally sells Rs 2 lakh per day but if they had done a business of say Rs 20 lakh during the harrowing demonetization days, it should have been flagged off.
The Pradhan Mantri Garib Kalyan Yojana (PMGKY) that was effectively an amnesty scheme for those who had blithely deposited their black money on or before 31 December 2016 with a stiff impost (75 percent tax) unfurled hot on the heels of demonetization was not taken seriously for two reasons — stiff impost and smug knowledge that they can cross the bridge when they come to it. In the event, the only tool in the hands of the government to redeem itself was to call the bluff of the depositors through its much-vaunted banking-IT software that was supposed to flag abnormal deposits so that the Income Tax Department could nab them. Not much has been heard about it since it was announced with a stern admonition.
Not all bank deposits are clean money. Indeed, money laundering is all about converting illicit money into legit. For black money owners, the short duration exchange counter was a godsend because it left no trace unless the government scrutinized them to zero in on those repeatedly queuing up. Deposits, on the other hand, left a trace of the depositor as well as the account holder. The feared software was supposed to flag repeated deposits, last minute deposits, and heavy deposits during the demonetization period.
The government was wrong in announcing in advance that deposits up to Rs 2.50 lakh would not be scrutinized. Crooks seem to have taken care to split the deposits into as many accounts as possible so that no one account got more than Rs 2.50 lakh. Add to this the convenience of depositing black money into the newly opened Jan Dhan accounts especially in the rural areas, and the story of ducking scrutiny is almost complete.
The Finance Ministry officials are busy touting the achievement of subsidiary objectives—-mainstreaming the black economy, stopping counterfeit notes, choking terrorist funds and encouraging digital payments—-to declaim the detractors. But nothing short of a modicum of achievement of the main objective—-unearthing black money—-would redeem the Modi government. It should have employed chartered accountants and others to scrutinize the deposits as to their genuineness. There is no use saying that some jewelers played a dubious role in converting black money and that investigation against them is in progress.
It is going to be one year and eight months since the cataclysmic demonetization exercise was carried out. And if the government is still groping for achievements to show insofar as the main objective is concerned, it is bound to be pilloried. A demonetization scheme porous and leaky as this one with so many unwittingly built-in laundering options was depressingly preordained to fail in achieving its main objective.
However, the RBI didn’t give any indication about the old tenders lying idle in Nepal and some other countries which are yet to be exchanged by the Indian government. India exchanged Rs 120 crore worth of demonetized Indian currency in Bhutan after much consternation, deliberation and delay in May 2017. As per the Reuters report, In Nepal around Rs 950 crore is held by individuals and informal sectors after India’s shock announcement in 2016 to ban 500 and 1,000 rupee bills. Indian authorities are scratching their heads as the estimates suggest that by exchanging the demonetized notes held in Nepal, the total number of invalidated currency notes of Rs 500 and Rs 1,000 denomination returned to the RBI may exceed 100 percent and may even touch 101 percent — a headache that Indian government would love to avoid after demonetization. The government in defense may say that the amount received in form of Rs 500 and Rs 1000 includes fake currency too. But, for their remembrance, in April 2018, in a reply in Parliament on March 16, the finance ministry has said that only Rs 35.30 crore of fake currency notes of Rs 500 and Rs 1000 denominations have been detected by the RBI during demonetization. The worried authorities of the RBI and finance ministry say this will increase the amount of demonetized currency to be exchanged in Nepal manifolds and lead to more than 100 per cent of the invalid currency coming back to the RBI.