Govt wants Rs 3.6 lakh crore from RBI, a third of its reserves, central bank says no

Last Wednesday, the finance ministry said that the autonomy for the RBI “is an essential” and both the government and the RBI have to be “guided by public interest and the requirements of the Indian economy”.




At the heart of the RBI-government standoff is a proposal by the Finance Ministry seeking to transfer a surplus of Rs 3.6 lakh crore, more than a third of the total Rs 9.59 lakh crore reserves of the central bank, to the government. The ministry has suggested that this surplus can be managed jointly by the RBI and the government.

The Finance Ministry claims that the existing economic capital framework — which governs the RBI’s capital requirements and terms for the transfer of its reserves to the government — is based on a very “conservative” assessment of risk by the central bank.

Sources have confirmed to The Indian Express that the RBI views this attempt by the Government to dip into its reserves can adversely impact macro-economic stability. And so the RBI has not accepted the proposed changes, sources said.

or its part, the Finance Ministry argues that the current framework was “unilaterally” adopted by the RBI in July 2017 because both the government nominees on the Board were not present during the meeting. The government did not accede to this framework and has since then been constantly seeking discussions with the RBI.

The government is of the view that RBI has over-estimated its capital reserves requirements resulting in excess capital of Rs 3.6 lakh crore.

That’s why, sources said, the government has proposed that the use of these funds be decided in consultation with the RBI. These funds can be used, for example, to recapitalise public sector banks, help them expand their loan book and come out of the Prompt Corrective Action framework.

The RBI, however, feels strongly that using central bank reserves has pitfalls. In its opinion, this does not tantamount to any fresh income, and was essentially in the nature of issuing new securities to fund government expenditure. Not only does it hurt the government’s commitment to fiscal prudence, it also affects the confidence of the financial markets.

The finance ministry has also raised objections to the staggered surplus distribution policy (SSDP) of the central bank, under which the RBI transfers its surplus to the government. The ministry’s view is that RBI has been “conservative” and at times “arbitrary,” especially when it came to the transfer of the interim surplus.

Sources said the ministry proposed that from 2017-18, the RBI should transfer the entire surplus to the government after taking into account its capital requirement. This is another area where the government and the RBI differ.

In 2017-18, the RBI transferred a surplus of Rs 50,000 crore to the government (comprising an interim transfer of Rs 10,000 crore), up from Rs 30,659 crore in 2016-17, but lower than in the previous three years.

The government believes that, when compared with global central banks, the RBI holds much higher total capital as a percentage of its total assets (at about 28 per cent).

Countries including the US, the UK, Argentina, France, Singapore maintain much lower capital as a percentage of total assets, while the same for countries including Malaysia, Norway and Russia are much higher than India.

The RBI maintains various types of reserves to cover various risks including market risk, operational risk, credit risk and contingency risk. For the year ending June 2018, RBI had total reserves of Rs 9.59 lakh crore, comprising mainly currency and gold revaluation account (Rs 6.91 lakh crore) and contingency fund (Rs 2.32 lakh crore).

While Contingency Fund represents the provisions made for unforeseen contingencies, the Currency and Gold Revaluation Account represent unrealised marked to market gains/losses.

In his speech on October 26, which brought into open the tussle between the finance ministry and the central bank, RBI Deputy Governor Viral Acharya said how a transfer of excess reserves from a central bank to government can be “catastrophic,” as had been proven in the case of Argentina. The transfer of $6.6 billion of its central bank’s reserves to the national treasury, sparked off “the worst constitutional crises in Argentina and led to “a grave reassessment of its sovereign risk”, Acharya asserted.

To buttress his point, Acharya quoted former Deputy Governor Rakesh Mohan to warn against the pitfalls of the government using central bank’s reserves. “The longer-term fiscal consequences would be the same if the government issued new securities today to fund the expenditure. (Raiding) the RBI’s capital creates no new government revenue on a net basis over time, and only provides an illusion of free money in the short term.”

Last Wednesday, the finance ministry said that the autonomy for the RBI “is an essential” and both the government and the RBI have to be “guided by public interest and the requirements of the Indian economy”. The government tried to defuse the tension in its relations with the RBI, which soured over the ministry starting consultations over a range of issues with the central bank under the Section 7 of the RBI Act.

Queries sent to the finance ministry and the RBI seeking comments for the story did not elicit any response.

Many economists and expert committees have in the past argued that the RBI is holding much higher capital that required to cover all its risks and contingencies. Former Chief Economic Adviser Arvind Subramanian said in Economic Survey 2016-17 that the RBI is “is already exceptionally highly capitalized” and nearly Rs 4 lakh crore of its capital transfer to the government can be used for recapitalizing the banks and/or recapitalizing a Public Sector Asset Rehabilitation Agency. This proposal was opposed by the then RBI Governor Raghuram Rajan.

The Malegam Committee in 2013 estimated that the RBI was holding Rs 1.49 lakh crore of reserves and buffers in excess of its requirements.





-Indian Express

Govt measures, I-T efforts raise tax-GDP ratio to 10-year high

Number of individual taxpayers with over Rs 1 crore income up 68 percent in 3 years.

A sharp rise in the number of Income-Tax returns filed and an increase in the number of taxpayers have widened and deepened the tax base during the last three assessment years, which in turn has seen the direct tax-GDP ratio touch a decadal high of almost 6 per cent.

Legislative and administrative measures, combined with enforcement efforts by the Tax Department to check tax evasion, have meant that the average tax paid by corporates has jumped 55 per cent to Rs 49.95 lakh in 2016-17 compared with Rs 32.28 lakh in 2013-14.

In the case of individuals, the average tax paid has increased by 26 per cent to Rs 58,576 in 2016-17 from Rs 46,377 in 2013-14, according to data released Monday by the Central Board of Direct Taxes.

The Tax Department data also show better compliance among salaried taxpayers vis-à-vis non-salaried taxpayers. During the three-year period (2013-14 to 2016-17), the number of salaried taxpayers increased from 1.70 crore to to 2.33 crore, a growth of 37 per cent. The average income declared by salaried taxpayers rose by 19 per cent to Rs 6.84 lakh from Rs 5.76 lakh during the same period.

The number of non-salaried individual taxpayers grew 19 per cent to 2.33 crore from 1.95 crore and the average non-salary income declared increased by 27 per cent to Rs 5.23 lakh in 2016-17 from Rs 4.11 lakh in 2013-14.

The number of taxpayers disclosing gross total income above Rs 1 crore rose 16.7 per cent year-on-year to 1.40 lakh in financial year 2016-17, according to the data.

Over a three-year period from the financial year 2013-14, a growth of 60 per cent has been recorded for the number of total taxpayers (including corporates, firms, Hindu Undivided Families, individuals) disclosing income above Rs 1 crore. In the individual taxpayers category, a 68 per cent growth was registered in 2016-17 to 81,344 from 48,416 in 2013-14.

Making an yearly comparison, taxpayers showing gross total income above Rs 1 crore grew by 16.7 per cent in 2016-17, higher than the growth of 10.9 per cent shown in 2015-16 but lower than the 22.2 per cent growth seen in 2014-15.

The number of returns filed also increased to 6.85 crore in 2017-18 from 5.57 crore in 2016-17 and 3.79 crore in 2013-14. The number of taxpayers increased to 7.41 crore in financial year 2016-17 from 6.92 crore in 2015-16 and 5.71 crore in 2013-14. Taxpayers, as defined by CBDT, include “persons who have filed a return of income for the relevant Assessment Year or in whose case tax has been deducted at source in the relevant Financial Year but the taxpayer has not filed the return of income”.

CBDT Chairman Sushil Chandra said the rise in compliance is the result of many non-intrusive administrative and enforcement measures taken by the Tax Department. Explaining one of the measures, Chandra said that last year, the Department had analysed data on the purchase of properties worth over Rs 1 crore, and asked taxpayers to pay the advance tax on time.

“The total number of taxpayers (corporates, firms, HUFs among others) showing income of above Rs 1 crore has registered a sharp increase over the three-year horizon. While 88,649 taxpayers had disclosed income above Rs 1 crore in assessment year 2014-15, the figure was 1,40,139 for AY 2017-18, which is a growth of about 60 per cent,” the CBDT said.

A closer look at the data reveals that while 14,068 individuals paid tax exceeding Rs 1 crore in 2016-17 as against 11,123 individuals in 2015-16, only four individuals paid tax exceeding Rs 100 crore but less than Rs 500 crore in 2016-17 (about Rs 665 crore) as against seven individuals (tax paid Rs 1,098 crore) in the same category in the preceding year. No individual paid tax of over Rs 500 crore in 2016-17 and 2015-16.

The Income-Tax Department is also focusing on information being received from other countries through automatic exchange of information to investigate cases of illegal funds and properties stashed abroad by Indians and may invoke the new anti-black money law for strict criminal action in many such cases, officials said.

The Department, in coordination with their foreign counterparts, is investigating offshore bank deposits and purchase of assets by “thousands of Indians”, the officials added.

-Indian Express

India aiming to double its economy to $5 trillion by 2022, says PM Modi

Prime Minister Narendra Modi said on Thursday that India was targeting to double its economy to $5 trillion by 2022 on the back of strong macroeconomic fundamentals.

Prime Minister Narendra Modi said on Thursday that India was targeting to double its economy to $5 trillion by 2022 on the back of strong macroeconomic fundamentals. Speaking at the foundation laying ceremony of India International Convention and Expo Centre (IICC), Modi said the manufacturing and agriculture sector would contribute $1 trillion each to the economy.
“India is targeting to be a $5 trillion economy by 2022, with $1 trillion each coming from manufacturing and agriculture,” Modi said. India is world’s sixth largest economy at $2.6 trillion, according to the database of the International Monetary Fund’s World Economic Outlook (WEO) for April 2018.



At a time when the country is reeling under a sharp depreciation in the rupee and a spike in the price of crude oil, Modi said the economy would grow at over 8 per cent and the IT and retail sectors would generate maximum employment. “The Indian economy will grow at over 8 per cent rate with massive employment generation being seen in IT and retail sectors. Macroeconomic fundamental of the economy are strong,” the PM said.



-Indian Express

In 5 years, 46% hike in base: Tax net widens as individuals fuel the surge

While the total taxpayer base grew at an average rate of about 7.9 per cent a year, individual taxpayers recorded an average annual growth rate of 8.2 per cent in these five years, inching up from 94 per cent in AY 2011-12 to 94.9 per cent in AY 2016-17, according to official data.

Even as the country’s total taxpayer base increased to 6.41 crore in assessment year (AY) 2016-17 from 4.38 crore in AY 2011-12 — a rise of over 46 per cent over five years — this surge has almost entirely been on account of individual taxpayers. Over these five years, the addition in individual taxpayers numbers was higher than the average trendline — up by about 48 per cent.
While the total taxpayer base grew at an average rate of about 7.9 per cent a year, individual taxpayers recorded an average annual growth rate of 8.2 per cent in these five years, inching up from 94 per cent in AY 2011-12 to 94.9 per cent in AY 2016-17, according to official data.
The term individual taxpayers include individuals who earn income through salary or through means such as interest, pension, who earn income from one housing property and individuals or Hindu Undivided Families (HUFs) with income from profits and gains of business or profession.
The surge in the numbers is, in part, attributable to the tax department’s focus on increasing compliance on the direct tax front, especially after demonetisation. It was reflected in an over twofold increase in searches to 1,152 by the tax department in 2016-17. The number of searches in 2016-17 was higher even than the combined number of searches in the previous two financial years (545 in 2014-15 and 447 in 2015-16). The total value of assets seized during these searches in 2016-17 stood at Rs 1,469 crore, as against Rs 712 crore in 2015-16 and Rs 762 crore in 2014-15.
During the first eight months of 2017-18 fiscal, the number of searches by the tax department stood at 360 (April-November). Searches during 2017-18 led to admission of undisclosed income of over Rs 10,100 crore. Also, over 3,100 surveys were conducted (till October) during 2017-18, leading to detection of undisclosed income of over Rs 2,400 crore.
Even within the class of individual taxpayers, there is a skew in the tax payout trend, as pointed out by Union Finance Minister Arun Jaitley in his Budget speech of 2018-19. He had said that as against the general perception that individual business persons have better income as compared to salaried class, the major portion of personal income-tax collection comes from the salaried class.



For assessment year 2016-17, 1.89 crore salaried individuals who filed their returns had paid a total tax of Rs 1.44 lakh crores, which worked out to an average tax payment of Rs 76,306 per individual salaried taxpayer. As against this, 1.88 crore individual business taxpayers including professionals, who filed their returns for the same assessment year, paid total tax of Rs 48,000 crore, which works out to an average tax payment of Rs 25,753 per individual business taxpayer.
Incidentally, the total number of individual taxpayers as on September 30, 2017, at 6.08 crore, constituted only 4.86 per cent of India’s total population of 125 crore. The Standing Committee on Finance, in its report in March 2018, had flagged the low number of individual taxpayers vis-à-vis the country’s total population and said that it “clearly demonstrated the “regressive nature of our direct tax regime” and “the narrow base the (Revenue) Department operates on”.
The House panel had suggested that the Revenue Department “review and reorient” its strategies with appropriate tax policy so that there is a broader as well as a deeper tax-base vis-à-vis other comparable and emerging economies.
“For this, the government needs to eliminate distortions and inequities embedded in the present system which should also be seen to be fair and just. The long-awaited Direct Taxes Code should squarely address this issue at the policy level while simplifying/rationalising the process and procedures. The tax slabs/rates in respect of GST may also be rationalised with a view to broadening the tax base and increasing tax compliance so that the objectives of the tax reform can be fully achieved,” the Committee had said.
The government had last year constituted a high-level task force headed by CBDT member Arbind Modi to review the Income-tax Act and draft a new direct tax law. The panel is supposed submit its report to the government by next month.
Direct taxes constitute about 50 per cent of the total tax collections of the country. The share of direct taxes in the total tax collections in the last six years has declined from 55.82 per cent in assessment year 2011-12 to 51.03 per cent in AY 2016-17. Correspondingly, the share of indirect taxes in the total tax collections has increased from 43.52 per cent in AY 2011-12 to 48.95 per cent in AY 2016-17.
Direct tax collections have grown over 57 per cent during last five years, crossing the Rs 10 lakh crore mark in the financial year ended March 31. Total direct tax collections stood at Rs 6.39 lakh crore in financial year 2013-14, rising to Rs 6.95 lakh crore in 2014-15, 7.42 lakh crore in 2015-16, 8.5 lakh crore in 2016-17 and Rs 10.02 lakh crore in 2017-18, as per latest official figures.

-Indian Express

Cash crunch again, five-fold hike in printing of Rs 500 notes ordered

Department of Economic Affairs Secretary Subhash Chandra Garg told reporters that average monthly demand has more than doubled to Rs 40,000-45,000 crore from Rs 19,000-20,000 crore just a couple of months ago.

THE GOVERNMENT said Tuesday that it has ordered a five-fold increase in production of Rs 500 notes to total Rs 2,500 crore per day after at least six states, including poll-bound Karnataka, reported a serious currency crunch with several ATMs running empty.

As Telangana, Andhra Pradesh, Gujarat, Madhya Pradesh and Bihar also reported a shortage, Union Finance Minister Arun Jaitley posted on Twitter: “Have reviewed the currency situation in the country. Overall, there is more than adequate currency in circulation and also available with the banks. The temporary shortage caused by ‘sudden and unusual increase’ in some areas is being tackled quickly.”

Department of Economic Affairs Secretary Subhash Chandra Garg told reporters that average monthly demand has more than doubled to Rs 40,000-45,000 crore from Rs 19,000-20,000 crore just a couple of months ago.

Garg said the government has enough reserves to meet the demand, which could be due to a “shortage mentality” as people try to hoard cash. “In the last few days, the government has stepped up currency printing. As against Rs 500 crore worth of notes being printed per day, it is being increased to Rs 2,500 crore per day now in denomination of Rs 500,” he said.

Speaking to The Indian Express, a senior banker said speculation over the proposed Financial Resolution and Deposit Insurance (FRDI) Bill has led people to suspect that “deposit-holders’ money may be frozen and utilised for capitalising banks”. “This likely change in deposit-holders’ rights may be causing fear among people who are rushing to withdraw their money,” said the banker, speaking on condition of anonymity.

Garg, however, said there is “absolutely no connection” between the proposed Bill and the shortage. The Bill, which is being examined by a joint Parliamentary committee, has a bail-in clause which proposes to use depositors’ money to bail out their bank or financial institution if it fails.

Garg said the government has Rs 1.75 lakh crore of currency in reserves, which is “sufficient” to take care of the increased demand. The government is closely monitoring the stock with around 4,000 currency chests in the economy, as shortage in pockets of country seem localised and could be partly due to currency management issues, he said.

The Centre had halted printing of Rs 2,000 notes recently as about Rs 6.7 lakh crore worth of notes of this denomination have been pumped into the market, said Garg. The government has no plans immediately to restart production of these notes, he said.

The government is also taking all steps to ensure that ATMs are supplied with cash and to get non-functional ATMs normalised at the earliest, he said.

The RBI said there is sufficient cash in its vaults and currency chests. “Nevertheless, printing of the notes has been ramped up in all the 4 note presses. The shortage may be felt in some pockets largely due to logistical issues of replenishing ATMs frequently and the recalibration of ATMs being still underway. RBI is closely monitoring both these aspects. Further, as a matter of abundant precaution, RBI is also taking steps to move currency to areas which are witnessing unusually large cash withdrawals,” it said in a statement.

However, former finance minister P Chidambaram said the shortage might be on account of supply being arbitrarily reduced. “A government is obliged to provide as much cash as the people need at any given time. Government or RBI cannot arbitrarily control the supply of cash,” the Congress leader said in a series of tweets, adding that if RBI has injected sufficient cash, “it is obliged to tell the people why there is a cash shortage”.

ATM service providers said there has been a drastic fall in meeting the daily requirement, especially since the first week of April. “Till March-end, the daily demand was being met by 90 per cent, irrespective of public or private banks. However, it has reduced since the first week of April and fallen drastically over the last week. Now, the requirement is only being met at 30 per cent by PSUs,” said V Balasubramanian, spokesperson, Confederation of ATM Industry (CATMI).

Experts pointed to various other reasons for the crunch: A mismatch between the rise of currency in circulation and economic growth in the 18 months since demonetisation, lower cash carrying capacity of some ATMs, a drop in digital transactions and dipping trust due to recent loan scams.




“Transactions through ATMs have increased since demonetisation and even the ticket size of these transactions have gone up substantially,” said Navroz Dastur, managing director, NCR Corporation, India & South Asia, a leading ATM service provider.

According to RBI data, as on February 2018, the total value of ATM transactions was Rs 2.47 lakh crore, up from Rs 2.42 lakh crore in October 2016 before demonetisation. The volume of these transactions surged to 718.97 million in February 2018 against 802.62 million in October 2016. At the same time, the number of ATMs also came down to 2.21 lakh in February 2018 from 2.22 lakh in March 2017.

Radha Rama Dorai, managing director, ATM and allied services, FIS, said the crunch is not a new phenomenon.

“Punjab has been facing a crunch since demonetisation and some states in the Northeast have been feeling the pinch over the last four to five months… One of the latest reasons could be the conversion of Rs 2,000 cassettes to Rs 200. The cash carrying capacity of ATMs have gone down in terms of value,” said Dorai.

RBI data suggests that currency with the public has shot up to Rs 17,59,970 crore as on March 30, 2018, compared to Rs 12,64,100 crore in the same period last year, a rise of close to Rs 5,00,000 crore. After demonetisation in November-December 2016, currency with the public fell to below the Rs 10 lakh crore mark to Rs 9,50,000 crore at the start of January 2017.

While the total value of transactions routed through the electronic payment system hit a high of Rs 149 lakh crore in March 2017, up from Rs 94 lakh crore in November 2016, the value of digital business in February 2018 was Rs 115 lakh crore, down from Rs 131 lakh crore in January 2018, according to National Payment Corporation of India (NPCI).

“Another possible trigger is that after the recent loan fraud at the Punjab National Bank, depositors feel that their money in banks is not safe. And when it happens at the grassroots level, it causes a big problem,” said a leading banking expert.

-Indian Express

I need to speak up now

Yashwant Sinha writes: The economy is on a downward spiral, is poised for a hard landing. Many in the BJP know it but do not say it out of fear

I shall be failing in my national duty if I did not speak up even now against the mess the finance minister has made of the economy. I am also convinced that what I am going to say reflects the sentiments of a large number of people in the BJP and elsewhere who are not speaking up out of fear.

Arun Jaitley is considered to be the best and the brightest in this government. It was a foregone conclusion before the 2014 elections that he would be the finance minister in the new government. His losing his Lok Sabha election from Amritsar was not allowed to come in the way of this appointment. One may recall that in similar circumstances Atal Bihari Vajpayee had refused to appoint Jaswant Singh and Pramod Mahajan, two of his closest colleagues in the party, to his cabinet in 1998. His indispensability was established further when the prime minister rewarded him not only by giving him the finance ministry including the department of disinvestment, but also the ministries of defence and corporate affairs. Four ministries in one go out of which he still retains three. I have handled the ministry of finance and know how much hard work there is in that ministry alone. Finance ministry, in the best of times, calls for the undivided attention of its boss if the job has to be properly done. In challenging times it becomes more than a 24/7 job. Naturally, even a superman like Jaitley could not do justice to the task.

Jaitley was, to begin with, a lucky finance minister, luckier than any in the post-liberalisation era. Depressed global crude oil prices placed at his disposal lakhs of crores of rupees. This unprecedented bonanza was waiting to be used imaginatively. The legacy problems like stalled projects and bank NPAs were no doubt there and should have been managed better like the crude oil bonanza. But the oil bonanza has been wasted and the legacy problems have not only been allowed to persist, they have become worse.

So, what is the picture of the Indian economy today? Private investment has shrunk as never before in two decades, industrial production has all but collapsed, agriculture is in distress, construction industry, a big employer of the work force, is in the doldrums, the rest of the service sector is also in the slow lane, exports have dwindled, sector after sector of the economy is in distress, demonetisation has proved to be an unmitigated economic disaster, a badly conceived and poorly implemented GST has played havoc with businesses and sunk many of them and countless millions have lost their jobs with hardly any new opportunities coming the way of the new entrants to the labour market. For quarter after quarter, the growth rate of the economy has been declining until it reached the low of 5.7 per cent in the first quarter of the current fiscal, the lowest in three years. The spokespersons of the government say that demonetisation is not responsible for this deceleration. They are right. The deceleration had started much earlier. Demonetisation only added fuel to fire.

And please note that the methodology for calculation of the GDP was changed by the present government in 2015 as a result of which the growth rate recorded earlier increased statistically by over 200 basis points on an annual basis. So, according to the old method of calculation, the growth rate of 5.7 per cent is actually 3.7 per cent or less.

Even the SBI, the largest public sector bank of the country, has stated with unusual frankness that the slowdown is not transient or “technical”, it is here to stay and the slowdown in demand has only aggravated the situation. It has openly contradicted what the BJP president said just a few days ago that the slowdown in the last quarter was on account of “technical” reasons and will be corrected soon. According to the SBI chairman, the telecom sector is the latest entrant to the long list of stressed sectors.

The reasons for this decline are not far to seek nor have they appeared suddenly. They have been allowed to accumulate over time to cause the present crisis. It was not difficult to anticipate them and take counter measures to deal with them. But that called for devoting time to the task, serious application of mind, understanding of the issues and then working out a game plan to tackle them. It was perhaps too much to expect from a person who was carrying the heavy burden of so many extra responsibilities. The results are there for all of us to see.

The prime minister is worried. A meeting convened by the prime minister with the finance minister and his officials appears to have been postponed indefinitely. The finance minister has promised a package to revive growth. We are all waiting with bated breath for this package. It has not come so far. The only new thing is the reconstituted Economic Advisory Council of the prime minister. Like the five Pandavas they are expected to win the new Mahabharat war for us.

The performance of the monsoon this year has not been flattering. This will further intensify rural distress. The farmers have received “massive” loan waivers from some state governments varying from one paise to a few rupees in some cases. Forty leading companies of the country are already facing bankruptcy proceedings. Many more are likely to follow suit. The SME sector is suffering from an unprecedented existential crisis. The input tax credit demand under the GST is a whopping Rs 65,000 crore against a collection of Rs 95,000 crore. The government has asked the income tax department to chase those who have made large claims. Cash flow problems have already arisen for many companies specially in the SME sector. But this is the style of functioning of the finance ministry now. We protested against raid raj when we were in opposition. Today it has become the order of the day. Post demonetisation, the income tax department has been charged with the responsibility of investigating lakhs of cases involving the fate of millions of people. The Enforcement Directorate and the CBI also have their plates full. Instilling fear in the minds of the people is the name of the new game.

Economies are destroyed more easily than they are built. It took almost four years of painstaking and hard work in the late nineties and early 2000 to revive a sagging economy we had inherited in 1998. Nobody has a magic wand to revive the economy overnight. Steps taken now will take their own time to produce results. So, a revival by the time of the next Lok Sabha election appears highly unlikely. A hard landing appears inevitable. Bluff and bluster is fine for the hustings, it evaporates in the face of reality.

The prime minister claims that he has seen poverty from close quarters. His finance minister is working over-time to make sure that all Indians also see it from equally close quarters.

-Indian Express

Demonetisation: Cash in Rs 2,000 now exceeds Rs 1,000 value in FY16

Demonetisation | As of March 2017: Value of currency in circulation across all denominations fell by 20 per cent to Rs 13.1 lakh crore compared with Rs 16.4 lakh crore in March 2016


Even as the government stated that one of the reasons for demonetisation of high value currency was that it will hurt black money hoarders who stash cash mostly in high denomination currency notes like Rs 1,000, the Reserve Bank of India Annual Report released on Wednesday reveals that the value of Rs 2,000 notes, as of March 2017 stood higher than the value of Rs 1,000 notes as of March 2016.
Data further show that while there was a huge shortfall in Rs 500 notes in circulation, that of Rs 100, Rs 50 and Rs 20 went up significantly. As of March 2016, while the value of Rs 500 notes in circulation stood at Rs 7,854 billion, the circulation of Rs 500 notes dropped 62 per cent to Rs 2,941 billion as of March 2017.
However, the value of Rs 100, Rs 50 and Rs 20 notes shot up in circulation between 60 per cent and 106 per cent over that in March 2016. Overall there has been a decline in currency in circulation. While the value of currency in circulation across all denominations stood at Rs 16.4 lakh crore in March 2016, it stood lower by 20 per cent to Rs 13.1 lakh crore as of March 2017.
The government had previously stated that one of the objectives of demonetisation was to make the economy a ‘less cash’ economy. The Reserve Bank of India said in its annual report that while the volume of currency in circulation went up by 11.1 per cent at end-March 2017, the value of banknotes in circulation declined by 20.2 per cent over the year ended March 2016.
“The volume of banknotes, however, increased by 11.1 per cent, mainly due to higher infusion of banknotes of lower denomination in circulation following the demonetisation. In value terms, the share of Rs 500 and above banknotes, which had together accounted for 86.4 per cent of the total value of banknotes in circulation at end-March 2016, stood at 73.4 per cent at end-March 2017,” Reserve Bank of India’s annual report said.
“The share of newly introduced Rs 2,000 banknotes in the total value of notes in circulation was 50.2 per cent at end-March 2017. In volume terms, Rs 10 and Rs 100 banknotes constituted 62 per cent of total banknotes in circulation at end-March 2017 as compared with 53 per cent at end-March 2016,” said RBI annual report added.

-Indian Express

Demonetisation: Ten figures that underline impact of PM Modi’s note ban

The disruption demonetisation had caused raises questions over the overall gains made and its impact on the economy.


Belying the expectations of the government that a significant amount of currency held by people would not return to the banking system, the RBI on Wednesday announced that 99 per cent of the demonetised Rs 500 and Rs 1,000 notes were deposited or exchanged.
As on June 30, 2017, notes worth Rs 15.28 lakh crore were deposited by people, according to RBI’s annual report. At least Rs 16,000 crore did not return to the system as the total value of Rs 500 and Rs 1000 notes in circulation was Rs 15.44 lakh crore. And RBI spent Rs 7,965 crore, nearly half of the Rs 16,000 crore gain, for printing new notes between July 2016 and June 2017.
Scrapping of the higher denomination notes had caused immense hardship for the public due to the slow pace of remonetisation. Squeezing the cash meant long queues outside ATMs and businesses taking a hit as the country’s economy was largely cash-driven.
The disruption it caused raises questions over the overall gains made and its impact on the economy.
After the country’s GDP growth fell close to two per cent, this year’s midterm economic survey had indicated that the impact from demonetisation is between 1/4 and 1/2 percentage points relative to the baseline of about 7 per cent.
Defending the demonetisation move, the government had repeatedly said it would curb terror financing and dent the drug trafficking industry as they heavily rely on counterfeit notes.
In July, the RBI told a parliamentary committee that ending the counterfeit currency menace was one of the reasons for accepting the govenrment’s demonetisaton move. The bank said that it was becoming increasingly difficult to differentiate between genuine notes and fake notes.
Despite the RBI stating in its report that counterfeit notes detected was 20.4 per cent higher than the previous year, the value of the fake demonetised Rs 500 and Rs 1000 notes in 2016-17 was just Rs 41 crore.
Meanwhile, Union Finance Minister Arun Jaitley, on Wednesday, said that one of the principal objects of demonetisation was to gradually bring down the quantum of cash operating in the system and an integration of the informal economy with the formal one where progress has been achieved.
“The object of demonetisation was not confiscation of money. The object of demonetisation was that India is predominantly a high-cash economy and, therefore, that scenario requires to be significantly altered,” he told reporters after the release of Reserve Bank of India’s Annual Report for 2016-17.
-Indian Express

Nowhere in the world has PPP in Metro rail fully succeeded, says E Sreedharan

India’s Metro Man, 85, former DMRC head and now adviser to Metro projects in many cities, tells The Indian Express what he finds wrong with New Metro Policy.

The New Metro Policy looks at reducing the Centre’s role in funding while making PPP mandatory for Metro projects…
It will never work. Nobody will come forward for construction of Metro rail as it has never been a profitable investment. Private players will look at least 12-15% return while no Metro project has ever yielded an investment return of over 2-3%. It’s the most disastrous and retrograde urban transport policy. The JV model, with funding from the Centre and states, has worked very well so far. The Centre is trying to reduce its role in financing and put the entire burden on the state governments. The policy seems to have been framed by someone sitting in the NITI Aayog with absolutely no experience of how Metro rail is built and operated. As it is, in India, all 12 such projects put together, only 20-25 km of new Metro rail is opened every year. China is galloping way ahead at 300 km being opened every year. We are already at a snail’s pace; now with this policy, everything will come to a standstill.
The Ministry of Urban Development has in the past argued that internationally several cities have tried the PPP model for urban rail projects.
Nowhere in the world has the construction and maintenance model of PPP in Metro rail completely succeeded. There have been cases where the government has invested all the money in setting up infrastructure and handed over operations to private parties. But that’s a very foolish thing to do, to put in public investment and allow the private person to enjoy the revenue. How will the government pay back the loan it has taken in the first place? Even if the private player is to spend on just the rolling stock, that constitutes only 18% of the total project cost.
How has past experience with PPP in Metro rail projects been in India?
PPP in India was tried out in Mumbai, Hyderabad, and the Airport line of Delhi. All three are a failure. In the airport line, DMRC invested 55% of the cost (50% of which was borrowed from Japan). Reliance Infrastructure, which was the only private player to come forward, invested in the rolling stock, electrification, and signalling. Reliance started operating the line, they found it loss-making, so they abandoned it, and ran away. We had taken it over and run it ourselves. In Mumbai Metro Line 1, Reliance Infrastructure took almost 7 years to complete 11 km of the relatively easier elevated line and they now claim to be losing 50 lakh per day in revenue everyday despite the very high fares they are charging. In Chennai, the state and central governments invested all the money with borrowing from Japan.
When they called for tenders for handing over the operation and maintenance, only one private firm came forward which quoted twice the DMRC’s O&M rates.
The new policy advocates the commercial development of land along stations to help maximise Metro revenues…
In the Hyderabad PPP model, 300 acres of land for property development was offered as a sweetener and L&T came forward. But since then, property values have come down and real estate is not making the same kind of money as it used to. Even 7 years after they first started the project, Hyderabad hasn’t managed to open even one section since once that is done, L&T will have to start repaying the bank. L&T has already started raising claims on the government with regard to loss of revenue. We had pioneered this public land exploitation model in Delhi but it has not succeeded much. So many shops are still lying vacant.
Why is it necessary that the central government continue to invest in mass public transport?
A good, reliable transportation system is a must to make a city livable and for its economic growth. Would Mumbai have been able to survive without its suburban rail services? The government had invested 100% in it. It is losing money but that doesn’t matter. If the government doesn’t invest, who will? In Kerala’s road transport, the state has entirely funded the construction of roads, their maintenance and lighting. It only handed over the operation of bus services to private players but most bus services are making losses. The Kerala government has to subsidise them at Rs 1 crore per day. Metro is way more capital-intensive as it requires everything from land acquisition to civil works, signalling, and rolling stock. With all that, Metro cannot be a profitable business. The government has to ensure affordable public transport and hence it must invest in it.

-Indian Express

Over 9.3 crore PANs linked with Aadhaar: Income Tax Department

NEW DELHI: More than 9.3 crore Permanent Account Numbers (PAN) have been linked with Aadhaar, a senior Income Tax Department officer said.

HIGHLIGHTS

• About three crore linkages were done in June and July.
• The tally is expected to grow as the Central Board of Direct Taxes has already extended the last date for linking till Aug 31.
• The govt had made the PAN-Aadhaar linking mandatory for filing ITR and obtaining a new PAN from July 1.
  

Of the total PAN-Aadhaar seeding, which is nearly 30 per cent of about 30 crore PAN card holders, about three crore linkages were done in June and July.

"By August 5, which was the last date for filing Income Tax Returns (ITRs), over 9.3 crore PAN-Aadhaar linkages have been registered by the I-T department," he said.

According to the officer, the tally is expected to grow as the Central Board of Direct Taxes (CBDT), the policy-making body of the department, has already extended the last date for linking the two unique numbers till August 31.

The government had made the PAN-Aadhaar linking mandatory for filing ITR and obtaining a new Permanent Account Number (PAN) from July 1.

The CBDT has said that for the purpose of e-filing of returns (by August 5), it would be sufficient to quote Aadhaar or acknowledgement number of having applied for Aadhaar, on the e-filing website of the department.

"The actual linking of PAN with Aadhaar can be done subsequently, but any time before August 31, 2017," the CBDT had said.

It had also cautioned taxpayers that ITRs would not be processed "until the linkage of Aadhaar with PAN is done".

Finance Minister Arun Jaitley had recently informed the Lok Sabha that the government has not fixed any time frame to complete the linking of Aadhaar with PAN.

E-filing of ITR is mandatory for all individuals, except those earning less than Rs 5 lakh per annum and those who are above 80 years of age.

The Supreme Court had in June upheld the validity of an Income Tax Act provision making Aadhaar mandatory for allotment of PAN cards and ITR filing, but had put a partial stay on its implementation till a Constitution bench addressed the issue of right to privacy.

The CBDT had on June 10 said that the apex court's order had only given a "partial relief" to those who did not have an Aadhaar or an Aadhaar enrolment ID, and the taxman, hence, "will not cancel" the PAN of such individuals.

While Aadhaar is issued by the Unique Identification Authority of India (UIDAI) to a resident of India, PAN is a 10-digit alphanumeric number alloted by the I-T department to a person, firm or entity.

There are about 30 crore PAN numbers allotted, while Aadhaar has been alloted to about 115 crore people.

- The Hans India

An embarrassment of riches

Why is the RBI not disclosing the amount from the surrendered notes? Have more than the issued amount of notes returned?

How much of the high denomination currency demonetised on November 8, 2016 is back with the Reserve Bank of India? Everyone wants to know but the answer eludes all. The finance minister, in a written reply to the Rajya Sabha on July 25, said that the bank is in the process of reconciling the notes to obviate any errors. He added that RBI’s machine processing capacity is being augmented. Incredible that it is being done at this late stage. Also, the answer will not be available any time soon.
The implications of the delay are many and go beyond the failure of demonetisation to tackle black money. For instance, there is a link of this with the extent of counterfeit currency and its detection or with the case pending in the Supreme Court regarding granting one more chance to return the demonetised notes to those who, for genuine reasons could not return them, and therefore stand to lose a part of their wealth.
According to media reports, by early January 2017, more than 90 per cent of the demonetised currency notes had returned to the banks. According to this author, RBI’s data on currency in circulation with the public implies that 98.8 per cent of the notes had been returned. So what is there to reconcile and how much is there to count? Why the new machines now?
Could it be that the surrendered notes are being recounted because of errors committed earlier? But recounting what? It was reported in November 2016 itself that all the notes surrendered are being shredded and given to a company in Kerala to be converted into briquettes. If this process has been going on, then recounting is meaningless and reconciliation impossible. When did shredding stop and the recounting start? What can be achieved by recounting the remaining notes which are not shredded?
Recounting seems to be posing an acute problem since the RBI governor, appearing before the Rajya Sabha Committee on July 13, said that counting is going on and information will be provided at the earliest. His deputy informed the committee that the RBI had 59 machines and had hired seven more and has floated tender to buy more machines. According to reports, he added that the delay is also due to notes from Nepal and those lying with the cooperative banks, which were earlier not allowed to deposit them with the RBI.
By January 13, only Rs 18,000 crore worth of notes had not been returned. Reports indicate that the cooperative banks have Rs 8,000 crore of the old notes which they can now return. Further, between January 1 and March 31, certain specified category of people could deposit their old notes.
So out of the Rs 15.44 lakh crore of high denomination notes with the public on November 8, 2016, less than Rs 10,000 crore of notes may not have come back (or less than 0.6 per cent of the total). Is this what is embarrassing for the government? The implication is that most of the black hoards of cash have been returned to the banks and possibly converted into new currency notes. With the availability of the new Rs 2,000 notes, it is now even easier to hold black cash.
Could the RBI not have given data on whatever it has recounted and told the pubic how much remains to be recounted? After all, data on notes returned and the new notes issued was regularly given up to December 12, 2016. This could have been extended up to March 31, 2017 which was the last date for NRIs and some specified category of people to return the notes they could not deposit earlier. Is it that data is not being released because perhaps more notes have come back than were issued by the RBI?
What an embarrassment that would be for the government which was expecting 20-30 per cent of the notes to not return. How is it possible that more notes are returned than were issued? Only if the fake currency floating around has been accepted by the banks. There has been speculation that counterfeit currency in large amounts was also returned to the banks and they could not control/check that due to the extraordinary pressure of work. Collusion is also possible. It is not going to be easy to check which banks or their branches colluded in accepting the counterfeit notes since currency was flooding at an extraordinary rate.
How much of the counterfeit currency was in circulation? According to a government commissioned study, reported in Parliament, there was Rs 400 crore of counterfeit currency in circulation. The RBI in its annual reports mentions the amount of fake currency notes caught every year. These are small numbers compared to the total currency in circulation. But it is likely that what is circulating is a large multiple of what is caught. So, if more than Rs 10,000 crore of fake high-denomination currency notes were circulating in the system on November 8, 2016 and if most of it came back to the banks then the portents would be grim. More currency would have been returned than was printed.
There is a case pending in the Supreme Court asking that one more chance be given to change old notes for new ones to those who still have some demonetised notes left with them. The government has opposed this on the ground that this relaxation would lead to the failure of the entire scheme of unearthing black money via demonetisation. But, if most of the currency is back or if more has come back, then how has the scheme helped unearth black money? Perhaps a thousand crore (0.06 per cent of the currency) may be left with those who are old or infirm or had forgotten the cash left at home and they stand to lose their hard-earned savings.
How can the scheme fail if this tiny amount does come back? Or, is it that with this amount coming back the total of returned notes would exceed the amount of notes issued? So, is the non-transparency only to avoid a huge embarrassment and loss of credibility? But for how long?
The writer is a former professor of economics, JNU

-Indian Express

Notes in circulation at 86 per cent of pre-demonetisation level: Govt

In a written reply to Lok Sabha, Minister of State for Finance Arjun Ram Meghwal said specific banknotes received are to be reconciled to obviate reporting errors and processed for numerical accuracy and authenticity through machines.

Notes in circulation as on July 21 were nearly 86 per cent of the pre-demonetisation level and RBI has made arrangements for supply of adequate banknotes in various denominations, Parliament was informed on Friday. In a written reply to Lok Sabha, Minister of State for Finance Arjun Ram Meghwal said specific banknotes received are to be reconciled to obviate reporting errors and processed for numerical accuracy and authenticity through machines.
“Remonetisation is taking place ceaselessly at a fast pace and RBI has made arrangements for supply of adequate quantity of banknotes in various denominations. Notes in Circulation (NIC) as on July 21, 2017 are nearly 86 per cent of NIC as on November 4, 2016,” Meghwal said.
Prime Minister Narendra Modi on November 8 had announced ban on Rs 1,000 and Rs 500 notes in a major assault on black money, fake currency and corruption. New Rs 2,000 and Rs 500 notes were then brought into circulation.
-Indian Express

RBI’s dividend to Government falls by almost half to Rs 30,659 crore

For the year 2015-16, the RBI board had approved the transfer of surplus amounting to Rs 65,876 crore to the government. In the previous year, the Central bank had paid Rs 65,896 crore to the government, which came as a boon to the government in covering the deficit. 

The Reserve Bank of India (RBI) on Thursday announced that it will transfer Rs 30,659 crore as surplus to the government for the year ended June 2017, less than half the amount transferred last year.
While the move could upset the Finance Ministry’s Budget arithmetic, a lower surplus also dents the broad premise that scrapping of currency notes that failed to return to the banking system post demonetisation would extinguish the RBI’s liabilities to an equivalent measure and, thus, open the possibility of transfer of these gains to the Centre in the form of higher dividends.

Technically, the transfer of profits is provided in Section 47 of the RBI Act, which states that after making provisions for bad and doubtful debts, depreciation in assets, contribution to staff and superannuation fund and for all matters for which provisions are to be made by or under the Act or that are usually provided by bankers, the balance of the profits of the bank is required to be paid to the Central government.

The RBI’s profits essentially represents the difference of income over expenditure. The key source of income for the Central bank is interest arising from its foreign assets and domestic assets.

For the year 2015-16, the RBI board had approved the transfer of surplus amounting to Rs 65,876 crore to the government. In the previous year, the Central bank had paid Rs 65,896 crore to the government, which came as a boon to the government in covering the deficit. The surplus transferred to the government was Rs 52,679 crore in 2013-14. The RBI did not give reasons of the sharp fall in the surplus income for the year ended June 2017.
The government had, in December last year, issued an ordinance for scrapped currency notes, paving the way for potential surplus transfer from the RBI on account of demonetisation.

As per the Specified Bank Notes (Cessation of Liabilities) Act, 2017, the scrapped currency notes of Rs 500 and Rs 1,000 (as announced on November 8 last year) “shall cease to be liabilities of the RBI under section 34 of the Reserve Bank of India Act, 1934 and shall cease to have the guarantee of the Central Government under sub-section (1) of section 26 of the said Act”.

A month earlier, in November, the then Attorney General for India Mukul Rohatgi, while replying in the Supreme Court on the demonetisation issue, had said that out of the total estimated money in circulation of Rs 15-16 lakh crore, the government expected people to deposit Rs 10-11 lakh crore in banks. “The rest, Rs 4-5 lakh crore, were being used in northeast and Jammu and Kashmir to fuel trouble in India. That will be neutralised,” he had said.

Incidentally, the YH Malegam committee had suggested in 2014 that the Central bank can transfer its entire surplus to the government, without allocating anything to its various reserve funds, for three years because it had adequate reserve funds.


The lower amount will be a concern since the government’s non-tax receipts will be affected. “In the Budget it was assumed that around Rs 75,000 crore would come from the RBI, public sector banks and financial institutions compared with a little over Rs 76,000 cr in FY17,” rating firm Care Ratings said.

“As public sector banks are unlikely to do better than last year and the RBI will be transferring a smaller amount, this will impact the fiscal deficit numbers. If other conditions remain unchanged, the fiscal deficit can increase from 3.2 per cent to 3.4 per cent this year,” it said.

The RBI’s main source of income is interest earned on bond holdings through open market operations or purchase and sale of government securities. Following the recommendations of the Malegam committee, the RBI stopped transfers to internal reserves since its accounting year 2013-14 which is now a part of expenditure.

According to the Malegam panel report, the RBI transfers the balance of its profits to the Central Government as per Section 47 of the RBI Act, 1934, after making provisions for bad and doubtful debts, depreciation in assets, contribution to staff and superannuation fund and for all matters for which provision is to be made by or under the Act or which are usually provided by bankers.

-Indian Express

 

Demonetisation effect: After a dip in Jan and Feb, digital payments rising

There was a sharp jump in March, likely due to last-minute tax collections and payment rush towards various income tax-saving instruments.

 

In the aftermath of demonetisation in November, several within the government had expected people returning to older habits of using cash instead of digital transactions once the supply of notes in circulation grew. However, latest provisional data from the Reserve Bank of India show that after falling in January and February, the value of electronic transactions still remain elevated. There was a sharp jump in March, likely due to last-minute tax collections and payment rush towards various income tax-saving instruments.

In April, the sixth month since the Centre’s decision, electronic transactions worth Rs 1,09,58,250 crore were conducted, compared with Rs 94,00,420 crore in November, Rs 1,04,05,530 crore in December, Rs 97,01,140 crore in January, Rs 92,59,450 crore in February, and Rs 1,49,58,910 crore in March. For March, a senior economist told The Indian Express, 15-20 per cent of the tax collections happen in the last month of the financial year.

This trend was also reflective across the various electronic payment tools such as National Electronic Funds Transfer (NEFT), prepaid payment instruments, debit and credit cards at point of sale (PoS) machines, and mobile banking.

During April, NEFT transactions worth Rs 12,15,620 crore were conducted. In November, the month when demonetisation was announced, there were NEFT transactions worth Rs 8,80,780 crore, which grew to Rs 11,53,760 crore in December and then fell to Rs 11,35,510 crore and Rs 10,87,790 crore in January and February, respectively, before sharply rising to Rs 16,29,450 crore in March. The RBI said on Monday that to ensure better service for customers, it would introduce an additional 11 settlement batches of NEFT at half-hourly intervals from July 10, beginning from 8.30 am till 6.30 pm to take the total number of half-hourly settlement batches during the day will increase to 23.

The government’s push to the National Payment Corporation of India-run Unified Payments Interface (UPI) through the BHIM app has also shown in the growth in amount of UPI transactions in the past six months. In April, there were Rs 2,200 crore worth of UPI transactions, according to the RBI data, down from Rs 2,390 crore in March, but higher than Rs 1,900 crore, Rs 1,660 crore, Rs 700 crore, and Rs 90 crore in February, January, December, and November, respectively. According to data compiled by the Ministry of Electronics and Information Technology, since the launch of BHIM on December 30, the app registered transactions worth Rs 1,406.89 crore till March 27.

The prepaid payment instruments (PPIs), which include mobile wallets, has shown a deviation from the general trend during the six month period and has continued to grow at steady pace after a fall in February over January. During April, transactions worth Rs 2,230 crore were registered on PPIs issued by eight non-bank issuers for goods and services transactions only.

In March, there were transactions worth Rs 2,150 crore, while in February, there were Rs 1,320 crore worth of transactions, Rs 2,130 crore in January, Rs 2,100 crore in December, Rs 1,870 crore in November.

For debit and credit cards, Rs 41,170 crore worth of transactions were conducted in April. In November, transactions worth Rs 35,240 crore were conducted, while in December, January, and February and March transactions worth Rs 52,220 crore, Rs 48,120 crore, Rs 39,150 crore, and Rs 41,620 crore were conducted, respectively.

-Indian Express

 

Six months after demonetisation: Currency in circulation may not match pre-8/11 levels

Given the slow pace of currency printing and indications from govt sources, it is unlikely that there will be full replacement of banned notes

As currency in circulation is about 20 per cent lower than the levels at the beginning of November 2016, the sharp decline in the pace of remonetisation over the past few weeks and indications from government officials suggest that the government and the Reserve Bank of India (RBI) may not go for full replacement of the currency that was in circulation during the pre-demonetisation period.

According to data from the RBI, while the net addition of currency into the system in the week ended January 13 stood at Rs 52,787 crore that in the week ended April 28 slipped to Rs 14,561 crore.
The government announced the withdrawal of old Rs 1,000 and Rs 500 notes (aggregating to Rs 15.5 lakh crore) from circulation on November 8, 2016.

While the currency in circulation was Rs 17,74,200 crore as on November 4, 2016, it dropped to Rs 8,73,416 crore as on January 6, as individuals across the country rushed the banks to deposit the demonetised currency in their possession. As the RBI has been in the process of printing Rs 2,000 notes and new Rs 500 notes to replace the demonetised notes, the total currency in circulation rose to Rs 14,06,968 crore as on April 28.

A look into the weekly currency data from the RBI shows that the net addition of currency in circulation turned positive for the first time (since demonetisation) in the week ended January 13, and the value of notes in circulation rose 6.04 per cent over the previous week (Rs 52,787 crore). However, there has been a declining trend in the pace of net addition since then. While the weekly growth of net addition of new currency between January 6 and March 10 hovered between 3 and 6 per cent, the weekly growth over the next six weeks till April 21 stood between 2 and 3 per cent. It came down sharply to 1.05 per cent in the week ended April 28 and during the week, the net addition of currency was only Rs 14,561 crore.

An extrapolation of the value of currency at 1.05 per cent weekly growth rate shows that it would take another 22 weeks to reach the value in circulation pre-demonetisation. But, given the slow pace of printing of currency and indications from government sources, it is unlikely that there will be full replacement of demonetised currency denominations.

A senior government official had earlier told The Indian Express that the economy needs only around 10 lakh crore of currency and the remaining lies in the informal economy. “While the total money in circulation pre-demonetisation was around Rs 17.5 lakh crore, government estimates that the formal economy was working with active circulation of about Rs 9-10 lakh crore. The remaining sum never got captured and while all of it may not be black money, it was part of the informal economy,” said the official who did not wish to be identified.

Experts say that while the initial decline in the value of remonetisation in February could have been on account of printing of low-denomination currency notes (Rs 500 and Rs 100) as against printing of Rs 2,000 notes, the sharp decline in the pace of value of net addition of currency in April shows that the RBI and the government may now be contemplating when to stop net addition of currency.

Economists also feel that the government may not need to bring the same amount of currency in circulation going forward. “This was one of the ideas of demonetisation. If you are able to bring idle money back into the system and also get citizens to use electronic mode of transactions, you don’t need that kind of currency in circulation and, thus, it is not required to print the same value of currency,” said D K Pant, chief economist, India Ratings.

Illustratively, suppose there is Rs 100 in the system of which Rs 80 is getting circulated and Rs 20 is lying idle. Then, if the government manages to bring idle money out through demonetisation and replaces only Rs 80 with new notes, it will have the same impact on the economy as previous Rs 100 was having, Pant added.

While it is only realistic to assume that after demonetisation also some amount of money has moved out of the system and is lying idle, experts say that the push towards digitisation and people adopting electronic mode of transaction will only reduce the need for higher volume and value of currency in circulation.

-Indian Express