Is it a Crackdown or Creation of New Lords of Black Money Hoarders?

On the night of november 8 this year, Prime minister narendra modi appeared on national television to declare his Government’s decision to demonetise Rs 500 and Rs 1,000 currency notes, with a window of 50 days for a smooth transition. no doubt the move has hit those who have accumulated unaccounted black money. the Bureaucracy Today magazine analyses whether the move will stop the hoarding of black money in time to come.

- Meghna Chukkath

The Modi Government’s sudden decision to demonetise Rs 500 and Rs 1,000 banknotes came at a time when an unaccounted cash flow, fake currency in the Indian system and dodgy funds had been stagnating the most promising economy of the world, say experts. at any given time, as per the findings of the Indian statistical institute, Kolkata, in 2015, as many as 250 out of every 10 lakh notes in circulation were fake. Likewise, banknotes with a face value of Rs 400 crore are said to be in circulation in India. the study observed that fake notes with a face value of Rs 70 crore were infused into the system every year, and law enforcement agencies were able to intercept only a third of this amount. the study also pointed out that Rs 1,000 notes constituted about 50 per cent of the total value of counterfeit notes.

In fiscal 2014-15, counterfeit notes in circulation rose 22% to 5,94,446 pieces, according to the Reserve Bank of India’s annual report. these counterfeit notes were detected in the banking system. While 95.6% of these notes were detected by commercial banks, 4.4% of them were detected at RBI offices. the number of counterfeit notes detected increased for all denominations, except for Rs 2 and Rs 5, which are almost out of circulation, being replaced by metal coins. notes of denominations of Rs 500 and Rs 1,000 together accounted for approximately 85% of the total value of banknotes in circulation as at the end of march 2015. notes of Rs 10 and Rs 100 together accounted for 54% of the volume as at the end of march 2015.

During 2014-15, around 1,510 crore pieces of soiled banknotes were disposed of as against a target of about 1,710 crore pieces and 1,420 crore pieces were disposed of during 2013-14.

However, this fiscal year would be different as the Modi Government’s has initiated a mechanism to eliminate fake currency from the Indian system.