Narendra Modi
Indian Prime Minister Narendra Modi speaks during the inauguration of the 46th session of Indian Labour Conference in New Delhi, India, July 20, 2015. Prime Minister Modi began work with unions and employers on Monday to build support for the biggest shak | Photo Credit: Reuters

When Prime Minister Narendra Modi announced on the evening of 8 November last year that Rs 500 and Rs 1,000 currency notes will no longer be legal tender, the government had hoped that as much as Rs 3 lakh crore, or a fifth of the money being sucked out, will not return to the banking system.

Yet, if news reports are to be believed, most of this money may have come back to the system. The Reserve Bank of India (RBI) has not released any data on the money it got back in old notes in the 50-day period till 30 December. But The Indian Express on Monday reported that as much as Rs 14 lakh crore may have come back, leaving out just Rs 75,000 crore--or just a fourth of the initial estimate.

This would effectively mean that as much as Rs 2.25 lakh crore may have been laundered, if the initial estimates of black money in circulation were correct. 

Of the approximate Rs 17.50 lakh crore in circulation, Rs 15.50 lakh crore--or 88% of the currency in circulation--was in the form of Rs 500 and Rs 1,000 notes, as of 8 November, the report said.

The report says that in addition to the Rs 14 lakh crore deposited, about Rs 50, 000 crore was with the banks themselves on 8 November, when the old currency was banned. This means that about 93.5% of the old currency is now back with the banks. 

An earlier report by Bloomberg had said that as much as 97% of the currency may have come back into the system.

A separate report in The Economic Times newspaper on Monday said that in 40 days following demonetisation, as much as Rs 3 lakh crore was deposited in 2.1 crore new bank accounts that were created between 15 November and 25 December.

Citing data available with the Financial Intelligence Unit, the report says that out of this, a sixth, or Rs 50,000 crore was in cash, while the rest was by way of cheques, drafts etc.  

The government has, however, maintained that most of the cash coming back into the system does not mean that the exercise in curbing black money has failed, but that a large part of the shadow economy has, in fact, been formalised. 

Citing officials, the Economic Times report said that the government believed that the speed with which new accounts were opened, showed that people had few options left but to tender their old notes back into the formal banking system, as the only other things they could do with them was to either buy gold at a premium, or destroy them. 

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