Why govt’s demonetisation move may fail to win the war against black money

A resident hands a Rs 500 note to a money lender at his shop in Hyderabad on November 9, as he seeks to exchange it for lesser denominations. (AFP)

A resident hands a Rs 500 note to a money lender at his shop in Hyderabad on November 9, as he seeks to exchange it for lesser denominations. (AFP)

The demonetisation of Rs 500 and Rs 1,000 banknotes is unlikely to help the government suck out black money from the economy as hoarders keep a tiny portion of their ill-gotten wealth in hard cash, going by income-tax data.

Cash recovery has been less than 6% of the undisclosed income seized from tax evaders, shows an HT analysis of data from tax raids from financial year 2012-13 onwards.

In a move that received a mixed response, Prime Minister Narendra Modi announced on Tuesday night a recall of the two currency denominations and set a 50-day deadline to exchange old banknotes with new at banks and post offices. Critics argued the move would do little to unearth black money hoarded by the rich who park their cash in different asset classes than keep it idle.

Tax data seem to bear that out. For instance, in income-tax probes from April 1 to October 31 this financial year, black-money holders accepted having stashed Rs 7,700 crore worth of ill-gotten assets. The cash component was merely Rs 408 crore or 5%. The remaining was invested in business, stocks, real estate and benami bank accounts, the data show. Financial year 2015-16 saw the highest black-money detection in the period, of which 6% was cash.

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