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11
November 2016
The surprise demonetisation of high
value denomination currency may lead to likely destruction of banknotes worth
over Rs3,35,000 crore while new notes worth Rs1,34,000 crore may be added to
the banking system, a leading think tank said on Friday. The Total Investment & Insurance Solutions
"This step by the government is a
death blow to the cash component of black money in India," Imagindia
Institute President Robinder Sachdev said. The Total Investment & Insurance Solutions
"Over $50 billion (Rs3,35,000
crore) of illegitimate cash will be destroyed, and over $20 billion (Rs1,34,000
crore) of legitimate cash will enter banking channels to become legal,"
Sachdev said.
The move comes in the wake of the
voluntary Income Disclosure Scheme (IDS) that ended on September 30 and
reportedly netted $19 billion (Rs 1,27,490 crore), according to the Washington
Post.
It means that India's war on domestic
black money will bring in approximately $40 billion (Rs 2,68,400 crore) into
the formal banking system of the country by December 31, think tank Imagindia
Institute said.
According to Reserve Bank of India
(RBI), the total value of the outstanding currency in circulation in the Indian
economy as on October 28 stood at Rs 17.77 lakh crore, or about $265
billion.
RBI data also shows that as on March 31,
currency notes of Rs 500 and Rs 1,000 comprised 86 per cent of the total
currency value in circulation. The
Total Investment & Insurance Solutions
"Not all currency notes in
circulation are illegally acquired cash. Our model to assess the impact of this
step by the Indian government accounts for 70 per cent of cash in currency
notes of Rs 500 and Rs 1,000 as legitimate, and 30 per cent as illegitimate
cash stowed away in bags and hiding places," it said.
This strike on the black economy will,
at the same time, eliminate fake currency and cripple terror financing,
significantly strengthening India's financial and banking infrastructure, as
well as bring almost all of India into the formal banking system. The Total Investment & Insurance
Solutions
However, Imagindia also added that the
current cash in circulation or hide-outs is a minor proportion of the black
money that has been generated in India. The Total Investment & Insurance Solutions
"It can easily be agreed that 20
per cent of India's GDP is unreported, and in the black economy... In the past
ten years, from 2006 to 2015, India's accumulated GDP was $20,134
billion," according to World Bank data. The Total Investment & Insurance Solutions
"At 20 per cent of illegal money,
it means that $4,027 billion have been created as black money in India in past
ten years," Sachdev said. The
Total Investment & Insurance Solutions
Majority of black money generated in
past ten years was converted into legal bank deposits, land and property, gold,
diamonds, silver, art, and other such items.
In addition, portions of it were sent
abroad to safe havens and investments, or circled back as legal investments in
Indian companies, he added. The Total
Investment & Insurance Solutions
"Through this war on cash economy,
the government will be able to destroy only $50 billion out of the $4,027
billion that was generated. The
Total Investment & Insurance Solutions
"However, this is the maximum that
can be done at this stage... nevertheless, it is a body-blow to the future of
black money in India," he said.The
Total Investment & Insurance Solutions
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