Five things that the annual report numbers indicate
1 With 99 per cent of the banned ~1,000 and ~ 500 notes back in the banking system,
it is now clear that at least some key figures in the government had overestimated the short-term gains of the demonetisation drive. The line of thinking was that at least ~3-4 lakh crore won’t return to banks, as black money hoarders would be too scared to disclose their income.
2 It also shows, as one economist says, the “structured and effective way the moneymules worked”
during demonetisation. A lot of people from low-income group allegedly deposited money in their accounts on behalf of tax evaders in return of a fat commission. The government managed to tackle some syndicates, but these were virtually unstoppable.
3 The money trail that has been generated after demonetisation
will lead the government and tax authorities
4 Cost of demonetisation far exceeded the direct monetary gain,
if any. For example, the central bank incurred about ~7,965 crore in printing new notes, against ~3,421 crore a year ago. Also, there would be logistics cost plus cost incurred by the banking system.
5 The reserve money position fell 13 per cent forthe first time since 1952, indicating a drop in RBI’s seigniorage income.
It remains to be seen if the decline in seigniorage income, which is earned by printing and managing currency, will have a permanent dent, as digitisation will put cash need in the economy on a downward trajectory.