Demonetisation: How Much of Black Money is in Cash

There seems to be some wrong interpretation of the data and hence the conclusions drawn. Table 1 presents high degree of cash seized compared to Jewellery and other assets. For e.g. in 20011-12, cash seized is 499.91 vs. jewellery of 271.40 and 134.30 of other assets. So the cash component is much higher than the other assets and jewellery and both combined. It should not be compared with the column of undisclosed income admitted. As the author and everyone else points out, cash is not kept in the form of cash but converted as it is easily fungible. This black money aids in much more undisclosed income in multiple vicious cycles.

The article tries to draw a conclusion - is it worth the trouble? But, does not provide other alternatives to fix the problem more effectively.

As black money in cash, generates more undisclosed income and jewellery and other assets, it must be attacked first. Let us take a simple example, a professional or a businessman starts earning black money and saves 30% of tax on it. After he gets that in cash (it will be in cash for sure to start with), they invest in real estate, bullion, conspicuous consumption and luxury goods again by paying in cash, with most of it being black. These transactions again can't be carried out through other means other than cash all that easily. Perhaps, they can be carried out using gold biscuits as well for the sake or argument, but we all know how cumbersome it is. Once their acquired assets such as real estate properties appreciate, they may sell them with certain black component in it (again acquired in the form of cash) and reinvest that in further assets and business. This cycle continues.

Aren't that nexus, vicious cycle and the connect between black money and cash not understandable? What else are the better ways to break this vicious cycle?

So shouldn't this high value cash and currency be flushed and squeezed out? In order to alleviate the pain for the common and genuine consumer, digital payments must be quickly ushered in.

If one looks at the velocity of money and multiplier effect of the small portion of this black money (of about 5% as indicated), then perhaps it won't be all that futile exercise.

Dear Viviek Kaul,

Do you think that overall currency in circulation in the economy would remain the same post demonetization? Do you expect the size of shadow economy to come down post demonitization? Do you think that many persons in the unorganized sector would start getting wages via bank transfer rather than in cash? Do you think that number of people accessing banking system would go up post demonitisation? Do you think that more co-operative societies would comply with KYC norms post demonitisaion? Do you think that many hawala and illegal trade network would have broken? And lastly would you join the people in asking politicians to make Adhaar compulsory for political donations?

all extimates and forcasts on quantam of black money in cash componant are gussing only and defers from supporters and opponents point of view on de monitisation .last 69 years no serious efforts were made to control black money because politicians traders professionals contractors gold merchants selfish intentions were taken care of by looting the public shamelessly. narendra modi for the first time in our history dared to destroy black empires for which common public is largely supporting him. 98% cash transactions were the order of the day to protect black empires only, now they are crying fool and pretending for caring public at q. cash restrictions must be enforced ruthlessly and all major transactions must be ruted in bank accounts only. we will deal in cash only mentality must be crashed at all cost

Demonetization has to be seen in conjunction with other legal changes particularly in the Income Tax Act. Also the societal perception of black money and its harmful implications should not be ignored. While the inconvenience has been grave, the future propensity to create unaccounted wealth and store it in cash would reduce. Also with real estate prices plateauing wherein the black money in the majority is stored the transition in the society is nearly complete. Look at the list of the approx. hundred Dollar Billionaires that India has - they hardly look like those who made a lot of black money.Another point is finding trust worthy allies who would store black money for the rich- they are a diminishing breed and the hurt they cause would exceed the benefit - is Sasikala for Jayalalitha a correct example- I don't know. May be Veerappan. No controversies sought to be created but black money wealth is fickle indeed.

I agree with Mr. Vivek completely. Your calculations , observations and all the derivations are perfectly logical based on the official figures/records. How the step is justified then in this backdrop? And the people sitting in the Finance Ministry, RBI and NITI Ayog are considered to be far more intelligent and knowledgeable than we common people having such common sense. Then How can they commit this big a blunder. But it is felt that they have not committed any blunder; they have their clear purpose behind this, other than bringing out this very small portion of cash hidden as black money; which they very well know and the entire nation is put in to a great trouble of very very prolonged time frame and the economy at large is put to an irreparable damage, And it will be really very very hard to put the economy on rail again. The sanity does not prevail in the present GOVT.

Everything is fair in politics. What ever good or bad happens to India as country and us as citizens, BJP has killed opposition's "power of Cash " and secured UP , Punjab and probably LS 2019. Isn't it worth ?

Hi Vivek,

You really need a reality check & think what discourse you have taken up.
Any comments on how much percentage was in the high demonetization notes in 1999 ?

I don't think Govt is not aware of these statistics . But political mileage , an act gives , will be the primary focus of the rulers . New government becomes the champion fighting a war against corruption and black money . Predecessors were just dumb spectators or collaborators .. Followers will be happy to become soldiers on the war and ready for sacrifices for the cause of the country . In politics , it is intent or facade of intent is more important than the actual results.

Dear Mr. Kaul,

Earlier i was really impressed with your letter. But here it looks like that you are spreading the negativity among the readers. Because i am 100% sure that everyone knows this is going to help the country tremendously in longterm. and it was must first step towards to make middle class people proud themselves. This is not the end. Mr. Modi already said that this is just starting.
Now the best thing will happen that everyone will come in the system.

One more thing you pointed out that Mr Modi is swifting his goal from Black money to Cashless. But you could have taken this another way is that Mr. Modi has added one more goal to his black money finding goal. Now the Goal is Black Money + Cashless. and this will make country great. If the country will start becoming cashless then hopefully it will reduce the black money in the future. If you forget the black money of past and concentrate the black money of future then this step will definitely India to generate the black money in future. I think this kind of step must be taken every 10 years to curb the black money.

This will also help to deduct the Duplicate Notes. this step has definitely helped to reduce the duplicate notes from the market. it will definitely reduce Inflation. Yeah initially there will be some negative effect on the economy but of-course it will help in the long run by other strict step ahead after demonetisation. One has to start from anywhere. BUT spreading negativity by showing the figure of expenditure what is the point of that. is that helping the country ? if you really like to show the expenditure figure then why you never come up in your news letter regarding the parliamentary expenditure for last 70 years where all the opposition whether they are congress or BJP not let run the parliament and stretch the important decision behind. How much country has spent on the parliament for unnecessary barking debate which never helps the country. is this unresulted parliamentary cost worthy ?

So here when there is expense but if this is for the good intention then what is the point of spreading the negativity instead of helping the people by giving them idea of how this can help in future ?

I was experiencing for last 10 years that the people were selling their agricultural land with higher price and then enjoying the perk of luxury of life with those money by sitting at home doing nothing. Whenever they need money just to sell the small portion of land and get money and enjoy the luxury by even not paying the tax. These people with selling land with much money in hand were helping in increasing inflation indirectly with no intention. But it was affecting the common man who were depends upon the job. because he or she did not have much cash in hand and they were not even able to purchase the small one BHK house with moderate salary. So this step is perfect for middle class people. at least there is one hope that this might help the country to reduce the inflation and will make the things affordable to everyone. This step will also force the people who have tendency to just sell the land and get the crores of ruppess and enjoy the higher life without working hard, without paying tax. now they have to think also to work for the money. This decision helped two category people to come closure.

Do you beleive in Laa of Attraction ? if not then you must believe in it. If you spread negativity and make people negative they will attract the negativity and make the country worst. Instead if the writer like you try to find out positivity and try to convince the people to become the positive where the intention of the leader is not against the people then it will definitely attract the positive to the country and make the decision successful.

If you say that your thinking is good then you mean that any government should not do any stricter step and just supervise the country as it is as it given by past government. Then when and who will do some strict decision for the country ? Do you think that this is democracy so we should not struggle the life to make country better ?

I think we should unsubscribe your letter to avoid the negativity. our minds are becoming negative by reading your news letter.

Thank you very much for helping my country by spreading the negative thing.

BUT i just want to say to all the reader that please consider the change of Cashless is addition to curb the black money. it is not changing from black money to Cashless. BUT IT IS BLACK MONEY + CASHLESS. this is power full step. forget about 1.28 lac crore for now. if you cant forget it then consider the parliamentery expense of one day as well by multiply it days in year for last few years. then say your self that if 1.28 lac crore is not worthy anf parliamentary cost is worthy when the MLA are just shouting in the debate and waste the days, weeks, months and years.


Thanks

Jaydip Desai

Besides black money, one very very important(in my opinion, the most important) reason for demonetisation was to curb the terrorist activities by curbing the proliferation of fake currency.
You are conveniently omitting the same.