Note ban objectives met: FM Arun Jaitley on RBI annual report

Finance Minister Arun Jaitley in New Delhi
Defending demonetisation, Finance Minister Arun Jaitley on Wednesday said those who did nothing to fight black money during their tenures had tried to confuse people about the real objectives of the note ban.

The objective of the November 8 ban of the old Rs 1,000 and Rs 500 notes was not how much money would return to the system, Jaitley said, addressing a new meet after the Reserve Bank of India’s (RBI’s) annual report that showed nearly all of demonetised currency had, in fact, come back. 

He added that all objectives of the move, which sucked Rs 15.44 lakh crore out of the economy and hit growth in the short term, had been met. “The real objective of demonetisation was formalisation, attack on black money, less cash currency, bigger tax base, digitisation, and a blow to terrorism. And, we do believe that in each of these areas, the effect has been extremely positive.”

In its annual report, the RBI disclosed that only 1 per cent of total amount of scrapped currency had not returned to the system. The remaining 99 per cent — Rs 15.28 lakh crore — was in, as of June 30.

Targeting the critics of demonetisations, especially those in previous governments, Jaitley said, “People who had not taken a single step during their tenure against black money have not understood the intent behind demonetisation.

Senior finance ministry officials, who were involved in the planning and implementation of demonetisation, also defended the move.

“The short-term, small negative impacts… on economic activity have played out fully. Long-terms positives will continue to strengthen fundamentals. With the RBI disclosing the numbers of returned notes today (Wednesday) and the measure having been successfully implemented, debate should be over,” Economic Affairs Secretary Subhash Garg tweeted.

An official who was also a part of the note ban team told Business Standard on the condition of anonymity that banned notes coming back into the system was just one of the objectives.

“We all knew most of the currency could eventually come back. What one should also look at are other parameters such as increased tax compliance, unearthing black money, and digitisation. And, it is not that the money that has come back is now all white. There are discrepancies, which the RBI and tax department will examine,” he said.

The finance ministry later released a statement corroborating this claim. “A significant portion of SBNs (specified bank notes) deposited could possibly be representing unexplained/black money,” the statement said, adding 1.8 million accounts were being scrutinised under the Operation Clean Money. “Since November 2016 and until the end of May 2017, a total of Rs 17,526 crore has been found as undisclosed income and Rs 1,003 crore has been seized.” 

The statement also said as a result of demonetisation, there was a substantial increase in the number of income tax returns filed. As of August 5, there had been increase of 24.7 per cent, compared to 9.9 per cent the previous year.

“Transactions of more than 300,000 registered companies are under the radar of suspicion while 100,000 companies were struck off the list. The government has already identified more than 37,000 shell companies, which were engaged in hiding black money and hawala transactions,” the finance ministry statement said, adding terrorist and Naxalite financing were stopped almost entirely as a result of demonetisation. Details about this, however, were not provided.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel