Of Demonetisation, Black Money and Jan Dhan Accounts - Vivek Kaul's Diary
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Of Demonetisation, Black Money and Jan Dhan Accounts

Mar 15, 2017

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On March 10, 2017, the Reserve Bank of India published a document titled Macroeconomic Impact of Demonetisation - A Preliminary Assessment. One of the things that the document analyses is the number of new Jan Dhan accounts that were opened after demonetisation came into effect and the money that flowed into them.

On November 8, 2016, the prime minister Narendra Modi made the announcement to demonetise Rs 500 and Rs 1,000 notes. Until December 30, 2016, these notes could be deposited into bank accounts and the money was credited against them.

In the aftermath of demonetisation, one of the theories offered was that many Jan Dhan bank accounts were opened and black money was transferred into these accounts. Is that correct? Take a look at Figure 1.

Figure 1

So, what does Figure 1 tell us? It tells us that the number of Jan Dhan accounts opened in the aftermath of demonetisation did go up. As the RBI document referred to earlier in the column points out: "Post-demonetisation, 23.3 million new accounts were opened under the Pradhan Mantri Jan Dhan Yojana (PMJDY), bulk of which (80 per cent) were with public sector banks . Of the new Jan Dhan accounts opened, 53.6 per cent were in urban areas and 46.4 per cent in rural areas."

But as can be seen from Figure 1, Jan Dhan accounts were being opened even before demonetisation came into force. And that is why the curve keeps sloping upwards even before November 2016.

I have considered data from September 2016 to see if the pace of opening of Jan Dhan accounts went up dramatically post demonetisation. It doesn't seem so from Figure 1.

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Let's take a look at some more data. Figure 2 maps out the week on week increase in the opening of Jan Dhan accounts in percentage terms.

Figure 2

What does Figure 2 tell us? It tells us very clearly that there was largely no spike in opening of Jan Dhan accounts during the post demonetisation period. The only spike came in the second half of December 2016, when the pace of account opening was faster than it was in the past.

This basically lays to rest one theory about many Jan Dhan accounts being opened post demonetisation, in order to deposit black money into them. But that does not mean that black money did not find its way into Jan Dhan accounts? Take a look at Figure 3. It basically maps out the total amount of money in Jan Dhan accounts from early September onwards.

Figure 3

Figure 3 makes for a very interesting reading. Before demonetisation came into effect on November 8, 2016, the pace of increase in the total money deposited in Jan Dhan accounts was very slow (the curve is almost flat). Post demonetisation the deposits saw a very rapid spurt. On November 9, 2016, the total deposits had stood at Rs 45,636.60 crore. This jumped by 40.8 per cent tor Rs 64,252.20 crore, a week later on November 16, 2016. It jumped again by 13.4 percent for the week ending November 23, 2016.

What happened here? As soon as the demonetisation announcement was made people started to move their black money into Jan Dhan accounts. This is very obvious from Figure 3, with a spurt in deposits of close to 41 per cent in the week following the demonetisation announcement. One of the ways this was done was when small traders and merchants gave interest free loans to their employees in old demonetised notes and asked them to deposit this money in the Jan Dhan accounts. This was done on the understanding that loans would later be cut from their salaries.

The government was not caught napping for once. It limited the total amount of money that could be deposited into Jan Dhan accounts to Rs 50,000 on November 15, 2016. As a ministry of finance press release on the same day put it: "Information has been received that there is sudden spurt in the quantum of deposits in several Jan Dhan Accounts. There are also reports of unscrupulous elements using Jan Dhan Accounts of poor and innocent persons to convert their black money into white. Such spurt in deposits will be looked into closely. Jan Dhan Account holders are requested not to allow their accounts to be misused by anyone."

This basically ensured that Jan Dhan accounts as a conduit of black money wasn't a very viable proposition anymore. Hence, people had to find other ways of depositing their black money into normal bank accounts.

As the RBI document points out: "Jan Dhan accounts contributed 4.6 per cent in total accretion of aggregate deposits of SCBs in the post-demonetisation period." This happened primarily because the government reacted quickly and limited the total amount of money that could be deposited into a single Jan Dhan account at Rs 50,000.

Further, the government is unlikely to disturb the Jan Dhan account holders. And given that those who converted their black money into white using the Jan Dhan route are likely to get away with it.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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7 Responses to "Of Demonetisation, Black Money and Jan Dhan Accounts"

Durga Prasad

Mar 16, 2017

You are out of sync with the majority view on demonetisation.you even postulated some uncapturable data to keep supporting your view. Please stop writing further as anyone can cook theory and say that data regarding that need not be given as it is unmeasurable

Like (1)

RK Sehgal

Mar 16, 2017

Number of Jan Dhan accounts = 27 crores approx.
Increase in deposits in JD accounts during DEMO period = Rs.27000 crores approx.
Average Increase in deposit per JD accounts during DEMO period = Rs.1000 only.
Is Rs.1000/- average increase in JD account black money?

Most of the maids, servants, drivers, workers, sales girls etc had got their monthly wages on or around 7th November 2017.
DEMO occurred on 8.11.2017. These low paid employees deposited their wages and savings lying in cash with them in JD accounts.
This was their hard-earned white money and can not be treated as Black money.

Like (1)

vinod bajaj

Mar 15, 2017

The money deposited in the Jan Dhan accounts will probably not be returned to original owners. It is a windfall for the Jan Dhan account holders. who will they vote for?

Like (1)

DDB

Mar 15, 2017

Sir,
Now that the people's verdict is out ,at least put up a brave front and acknowledge that your pre conceived notions on Demonetisation can go wrong.That will establish yourself as a "Man of substance ". My suggestion to you is to start a signature campaign urging the Government not to give any relief to those who used the Jan Dhan accounts to get the black money converted. That would prove the intentions of the Government in a much better perspective and the masses will appreciate it more than your anti Government write ups . Seeing the overwhelming response to the campaign ,the Government may act upon it , we never know.

Like (2)

KIRIT SARAIYA

Mar 15, 2017

Please now keep notebandi away to save our time.you are thinking in one line only.world is no too small. as you think.

Like (2)

RK Sehgal

Mar 15, 2017

Number of Jan Dhan accounts = 27 crores approx.
Increase in deposits in JD accounts during DEMO period = Rs.27000 crores approx.
Average Increase in deposit per JD accounts during DEMO period = Rs.1000 only.
Is Rs.1000/- average increase in JD account black money?

Most of the maids, servants, drivers, workers, sales girls etc had got their monthly wages on or around 7th November 2017.
DEMO occurred on 8.11.2017. These low paid employees deposited their wages and savings lying in cash with them in JD accounts.
This was their hard-earned white money and can not be treated as Black money.

Like (2)

Anurag Garg

Mar 15, 2017

Dear Mr Kaul,
I have been a fan of your blogs and read all of these with great interest. As far as, DeMo is concerned, I have been struggling to get my head around 1-2 points:
1. Whenever I visited the bank during those 50 days of DeMo, all of staff members were haggling to deposit the cash. Where does this man-power came from to open massive number of Jan-Dhan accounts?
2. Why are we saying as blanket statement that all amount in Jan-Dhan is BLACK. Jan-Dhan accounts were opened to for un-banked population and majority of them have never deposited amount in Banks. As 500/1000 notes were banned on 8/Nov, all of them had to deposit the available cash in Bank Accounts hence we are seeing spurt.
3. How is it sitting with normal bank accounts? Did we not see same movement there as well?

I do agree that there might some black sheep but painting all Jan-Dhan accounts with one brush is not justified.

Like (2)
  
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