COMMENT: After demonetisation, cash flowed back through these 5 channels

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Shishir Asthana
Moneycontrol Research


The Reserve Bank of India (RBI) has not yet announced the value of demonetised notes that have come back into the banking system.  News reports of 97 percent of the money coming back has effectively been denied by the central bank, which says it is still counting currency.


But there is publicly available data showing that unaccounted money as well as hoarded money has entered the formal system. We look at five windows through which this money became mainstream.

Bank accounts: Deposit data is one of the easiest and fastest to measure as banks do their counting daily. Reports say that within 40 days of demonetisation two crore new accounts were opened in which Rs 3 lakh crore was deposited. Further, Rs 25,000 crore were deposited in dormant accounts and Jan Dhan Accounts saw deposits touching over Rs 71,000 crore. Senior officials have been quoted as saying that this kind of money could not have come into the banking system in the next five years had demonetisation not been announced. Income tax officials have been quoted as saying that Rs 3-4 lakh crore of tax evaded income could have been deposited in the banking system. IT sleuths have been able to segregate Rs 42,000 crore of deposits having common PAN card numbers.

Religious institutions and NGOs: Demonetisation was a godsend for religious institutions who benefited from deposits which could not have been made in the banking system for fear of attracting penalties. Since anonymity was maintained in religious institutions, these institutions saw higher deposits in old notes during demonetisation. Similarly, many NGOs were openly asking for donations in old notes with no strings attached. However, the exact numbers of deposits in these institutions is not yet public. Tirupati, Puri and Siddhi Vinayak attracted heavy donations, according to news reports.

Taxes: Finance Minister Arun Jaitley would like us to believe that higher tax collection, which he recently announced, is a sign of an economy not being affected by demonetisation. However, most of the tax deposits have been indirect in nature. IT officials have said that many smaller businessmen prefer to join the mainstream by paying excise or service tax and booking revenues. Inventories were pre-sold and indirect taxes paid.

Gold and foreign currency: In the initial days of demonetisation gold and foreign currency were some of the favourite instruments of converting black money. Gold transactions were reported at a 30 percent premium over cash prices. Gold imports touched a 15-month high in November. However, with the government imposing stricter norms, gold as a conversion instrument lost its fancy fairly quickly.

Repayment: Bankers were a happy lot post demonetisation, as nearly Rs 80,000 crore of bank loans were paid off in old notes; many of these loans had earlier been classified as non-performing loans. Though bankers are breathing a sigh of relief as money has come back, IT officials have already red-flagged these accounts which will now witness closer scrutiny.


There is one more way through which unaccounted money has come back in the system and that is voluntary disclosure and IT raids. Details of these are not yet publicly available, though IT officials have said that they have detected Rs 5,300 crore of undisclosed income.

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