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Demonetisation: How Much of Black Money is in Cash

Dec 13, 2016


One of the original aims of demonetisation was to eliminate "Black Money which casts a long shadow of parallel economy on our real economy."

Since then through some deft marketing, the prime minister Narendra Modi has shifted the goal of demonetisation towards going cashless and digital payments. Nevertheless, given the fact that demonetisation of Rs 500 and Rs 1,000 notes was carried out to curb black money, it is worth asking how much black money did Indians hold in the form of cash.

Black money is essentially money which has been earned through legal as well as illegal means but on which tax has not been paid. It is also important to understand that people do not hold all their black money in the form of cash in their homes. They convert it into gold and real estate, and move it abroad to tax havens. From there it comes back through Foreign Institutional Investors(FIIs) and is invested in the stock market as well as debt market.

Hence, black money can be held in several forms. From real estate to gold to bonds to stocks. And of course, cash as well. The idea behind demonetising Rs 500 and Rs 1,000 notes was to hurt those who stored black money in the form of cash.

As the government press release accompanying the demonetisation decision pointed out: "Use of high denomination notes for storage of unaccounted wealth has been evident from cash recoveries made by law enforcement agencies from time to time. High denomination notes are known to facilitate generation of black money."

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This essentially leads to the question what portion of black money was held in the form of cash. In May 2012, the finance ministry released a White Paper on Black Money. And that had some very interesting data points. Take a look at the Table 1 below, which deals with the search and seizure operations carried out by the income tax department.

Table 1: Value of assets seized (in Rs. Crore)
Year Cash Jewellery Other assets Total Undisclosed Income
Admitted (in Rs Crore)
2006-07 187.48 99.19 77.96 3,612.89
2007-08 206.35 128.07 93.39 4,160.58
2008-09 339.86 122.18 88.19 4,613.06
2009-10 300.97 132.20 530.33 8,101.35
2010-11 440.28 184.15 150.55 10,649.16
2011-12 499.91 271.40 134.30 9,289.43
Source: White Paper on Black Money

The cash seized at the time the search and seizure operations were carried out by the income tax department, is a small portion of the total undisclosed income. This becomes clear from Table 2.

Table 2:
Year Cash Total Undisclosed Income
Admitted (in Rs Crore)
Proportion of cash in total
undisclosed wealth
2006-07 187.48 3,612.89 5.2%
2007-08 206.35 4,160.58 5.0%
2008-09 339.86 4,613.06 7.4%
2009-10 300.97 8,101.35 3.7%
2010-11 440.28 10,649.16 4.1%
2011-12 499.91 9,289.43 5.4%
Total 1,974.85 40,426.47 4.9%
Source: Author calculations based on White Paper on Black Money

If we look at data for the period of six years of close to 24,000 seizure and search operations, cash formed 4.9 per cent of the undisclosed wealth. Also, the proportion varied from 3.7 per cent to 7.4 per cent over the years.

What this data tells us is that people who have black money do not store it in the form of cash. There are better ways of storing that wealth.

The next question that crops up here is that what is the total amount of black money in India. The official sources of the total amount of black money in the economy as a proportion of Indian GDP are very old. Take a look at Table 3.

Table 3:
Year Black money as a
percent of GDP
1975-1976 15 to 18
1980-1981 18 to 21
1983-1984 19 to 21
NIPFP estimate. Source: White Paper on Black Money.

As the White Paper on Black Money published in May 2012 points out: "The last official study for estimating black money generation was conducted at the behest of the

Ministry of Finance by the NIPFP [National Institute of Public Finance and Policy] in 1985."

In 2010, the World Bank came up with estimates of the size of black money in India between 1999 and 2007. Take a look at Table 4.

Table 4:
Year Black money as a
percent of GDP
1999 23.2
2000 23.1
2001 22.8
2002 22.6
2003 22.3
2004 22.0
2005 21.7
2006 21.2
2007 20.7
Source: World Bank

Both the White Paper on Black Money and the recent press release on demonetisation refer to these data points. But they end up flipping the figures. As the press release on demonetisation points out: "The World Bank in July, 2010 estimated the size of the shadow economy for India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007." As can be seen from Table 4, this is exactly the opposite of the World Bank figures.

I wonder how a mistake of this kind can be made in the case of something as important as demonetisation is. I guess what must have happened is that the Babu drafting the demonetisation press release must have lifted the figures straight from the White Paper on Black Money, which had them wrong in the first place.

Anyway, the nit-picking aside, what these data points clearly tell us is that the black money in India amounts to around one-fifth of the GDP. The Indian Gross Domestic Product (current prices) for 2015-2016 stood at Rs 135.76 lakh crore. Hence, the total amount of black money amounts to Rs 27.15 lakh crore, using these estimates.

Data from the search and seizure operations of the Income Tax Department tells us that black money in the form of cash forms just 4.9 per cent of the total black money. This means that the total black money in the form of cash amounts to Rs 1.33 lakh crore (4.9 per cent of Rs 27.15 lakh crore). This is the money that the government is going after through demonetisation.

The question is, is this worth all the trouble? Take a look at Table 5.

Table 5: Recovery of Black Money
Financial year Seized assets
(in Rs. Crore)
Undisclosed income
(in Rs. Crore)
2015-2016(up to November 2015) 470 6,167
2014-2015 762 10,288
2013-2014 808 10,792
2012-2013 575 10,292
2011-2012 906 14,017
2010-2011 775 10,649
2009-2010 964 8,101
Source: Annual reports, Ministry of Finance.

Table 5 clearly shows the limited abilities of the Income Tax Department when it comes to digging up black money in the economy. Even if we ignore this and assume that this time around given the government focus, the Income Tax Department will be able to do better, the question is how much better?

The total amount of black money in the form of cash amounts to Rs 1.33 lakh crore. If the government can recover 50 per cent of this, by taxing it, it amounts to around Rs 66,000 crore. The fall in GDP growth because of demonetisation will turn out to be much greater than this. The Centre for Monitoring Indian Economy estimates that just the transaction cost of demonetisation will amount to Rs 1.28 lakh crore.

To conclude, this brings us back to the question, whether all this was worth the trouble?

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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24 Responses to "Demonetisation: How Much of Black Money is in Cash"

Abhilakh Borgohain

Apr 10, 2017

I have read repetitive comments on how India should go all cashless and thrive on digital payments. In a nation with mass illiteracy, poverty and no electrification is it really possible to go that cashless? Where most of the people use their thumbs for signatures, how would you expect them to make digital payments?

PS: Modi fanatics will always bark for him.



Dec 24, 2016

Vivek, I would love to quote your Guru -BILL BONNER here.

He says "leading economists preferred not to look. They closed their eyes to what an economy actually is(to how it works) and focused on their own world- a make-believe playground of numbers, theories and public information, with little connection to the world that most people lived in. Not surprisingly, they missed things...(HORMEGEDDON - pages 30 & 31).

I would not like to add more. I rest my case here except to thank you VIVEK for getting me HERMEGEDDON.



Dec 15, 2016

Hi Vivek Sir,

I heard one news that "total amount of cash (in 500's and 1000's) deposited is 18 lakhs Cr .
where as total amount in circulation is around 14.2 lakhs Cr. Even fake notes were also deposited .

Not sure whether this news is true or not ?

but in case if it true - what will be impact on economy ?



Dec 14, 2016

This is an important point, and most of the post is accurate. But there appear to be two inaccuracies, which, if addressed, will improve this post. Please consider the following (first two points concern inaccuracies, and the third is a point about emphasis):

1) You say, "I guess what must have happened is that the Babu drafting the demonetisation press release must have lifted the figures straight from the White Paper on Black Money, which had them wrong in the first place."
- I can't comment on the first part of this statement, but the second part is not accurate. Here is the direct quote from the White Paper: "The World Bank Development Research Group on Poverty and Inequality and Europe and Central Asia Region Human Development Economics Unit in July 2010 estimated 'Shadow Economies' of 162 countries from 1999 to 2007.6 It reported that the weighted average size of the shadow economy (as a percentage of 'official' GDP) of these 162 countries in 2007 was 31 per cent as compared to 34 per cent in 1999. For India, these figures were 20.7 per cent and 23.2 per cent respectively, comparing favourably with the world average."

2) Shadow economy as percentage of GDP is not the same as black money accumulated as percentage of GDP. Shadow economy measures try to estimate the quantum of production that is in the shadow economy (as percentage of official GDP). This production leads to some accrued income for those organising such activity. These incomes get accumulated, which can be called unaccounted wealth. When we say black money, we usually mean unaccounted wealth. So, the World Bank estimate is a flow, not the stock. The latter is likely to be higher than the former.

3) What matters more? What percentage of total cash is unaccounted, or what percentage of unaccounted wealth is in cash form? The latter is more important if one is really trying to attack black money. The evidence strongly suggests that, as a percentage of total unaccounted wealth, cash is minuscule. Even if instead of about 8 percent (as you suggest), say, a third of total cash was unaccounted, to subject the holders of the other two-thirds, especially those with low incomes, to such destruction of their property rights makes no sense, because the welfare loss inflicted upon those with black money would be quite small.

As an aside, sadly, most of the "conservatives" and "classical liberals" are cheering on this massive increase in state power that is being used to launch an irresponsible assault on property rights, enormously increasing uncertainty, suspending basic principles such as "not letting one innocent person suffer, even if it means letting hundred criminals walk free", "one is innocent until proven guilty", etc.


Prasad BS

Dec 14, 2016

First a few disclaimers : I am not representing the Government's view & am not from any political party. Just an ordinary concerned citizen.

I want to ask you one fundamental question - does the nation deserve to change the way financial transactions are presently handled? Would you not welcome or support a move that tries to move 'off-book' financial accounting to 'on-book'? Would you see reason beyond the ones put out by the one who started this initiative to see this(forced though it may be, on us, the pedestrians) in a different and proper perspective?

The invention of the light bulb led to many other developments although the primary intent was to convert one form of energy to light in a convenient way.

I read your mails because I find them interesting. I however have my misgivings on your limited view of the definition of 'Black Money.' Here's what you state: "Black money is essentially money which has been earned through legal as well as illegal means but on which tax has not been paid." Do 'illegal means' come under the purview of tax? Does the state make allowance for assessing this as part of the GDP? Does it have a 'Make in India' illegal activities bouquet that needs to be encouraged too?

If you agree with me, then read on else trash my response here. The test for 'Black Money' is not merely evasion of tax. Evasion of tax is, according to me a lesser evil, but an evil indeed! More than anything, black money is wealth created with the primary intention of evading the law of the land, for what ever the purpose be. Larger concerns would hover around human trafficking, drug trade, illegal arms trade, arms and ammunition to protect and promote illegal activity (murders, arson, loot, kidnapping etc.,), rent seeking for subverting the laid down laws to favour a few (includes political party funding as done presently), poaching, de-foresting for lumbering or land grabbing ... what I have stated here is merely illustrative not exhaustive.

Let's not be driven the intentions of one man, even if he is our PM, to define the goals of an exercise - it can, if encouraged by those like you, provide the fulcrum to tilt the tipping point towards a less cash oriented society! The more the users of alternate methods of settling credit, the less the need for cash. You (I presume you would be less hooked on to cash as your staple mode) & I can add a few and those few a few more and who knows, some day, sooner or later, the need for cash to fund illegality - illegal activity needs the oxygen of cash to thrive, let's not fool ourselves otherwise - might diminish.

Lifestyle patterns evolve. Deviousness defines law. The law is always 'behind' the 'law less.' Yes, the dishonest will find other means. Till then, let us try to create an air where honesty is given a chance.

The next time you write, I would like to read more about, how course correction might optimise the outcomes in the present case. I am tired of reading only the plusses put out by the government and minuses put out by those who oppose for the sake of opposing the move. Let us realise that there is no turning back in this exercise and move ahead. It is the silence of the learned in this country that has often inflicted maximum damage.


Prasad BS

Like (7)

Pancham Mehta

Dec 14, 2016

Vivekji, Very Good article and indepthly analysed. All 5 tables shows that indepth working has been done on the article. My one question to your is that you expect 1.33 lac core as black money but have you factored 65000 crore recoverd under Income Disclosure Scheme ended September 2016. And if this is factored in than app another 65000 core is only left has black money which the Govt has to work. Is it right?
I would appreciate if you or your team would reply.
Thanking in advance.

Like (7)


Dec 13, 2016

Surprised someone as astute as Vivek kaul made such a basic error of conflating the annual generation of black money with stock of black money. BM generation is 20% of GDP but total stock of BM is estimated to be well in excess of 100 trillion. Redo the math of total BM in cash based on that. Hope author shows the honesty to rectify the article.

Like (3)

Suresh S Patel

Dec 13, 2016


I wish author besides pointing out futility of demonetization would have also made sound suggestions to curb or eliminate black money from Indian economy. Overwhelming positive response from Indians is an indicator how strongly masses feel that there should be no black money. In country like India where corruption is rampant ingrained in the culture, its an uphill battle for Modi or anyone else. However, his push for cashless society should be welcome. If Mr. Kaul does not have ideas, here are my suggestions to curb the curse of black money.

1 Make everyone including FARMERS file income tax returns - even if they are zero returns and make them disclose all large deposits in their account in access of Rs. 1 lakh / acre.

2 Require that all settlements of payments in access of RS. 10,000 be made by check or credit cards.

3 Require that contributions to political parties or candidates be made by check or credit card only.

4 Quadruple the assessed value of land and reduce the stamp duty to one fourth from current level.

5 Everyone whose name is disclosed by Mahesh Shah should be jailed in solitary confinement One Year for each undisclosed crore and 100% confiscation of the corpus. This will scare the devil out of big cheaters and accumulators of black money.

6 As tax collections grow, lower the tax rates so people volunteer to be honest.

7 Use the tax collections wisely and not squander it on populist inefficient government programs.

Mr. Kaul, I have several more recommendations. Do you promise to cover them in your letter? After you are also a citizen and life of your children and grand children need to be uncomplicated.

Suresh Patel

Like (2)


Dec 13, 2016

i believe it was a necessery step taken by the govt.
may b govt will take few more diff steps in coming days.It is far better than not taking any stop AT ALL

Like (1)


Dec 13, 2016

We can equate this cash clean-up to a pest control operation at home. Though pests does not affect our homes much directly,but slowly these pests eats away our furniture and our other household goods causing huge damage. We can use other methods of buying stop gap repellents and continue with life. A one-time operation of pest control needs us to bear few days of inconvenience of cost, household goods shifting, and skipping our daily meals. And this pest control operation not only cleans-up the house, but we also change our habits of maintaining the house to ensure pest free home.
So in that sense the demonitization operation is worth it.

Like (2)
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