Analysts supporting the cash recall move initially claimed that at least 20 per cent, or a little over Rs. 3 lakh crore — out of the total Rs. 15.4 lakh crore of the banned banknotes — would not come back to the banking system.
The demand destruction unleashed by the November 8 demonetization drive saw the bank credit shrinking by a whopping Rs 61,000 crore, or 0.8 per cent, during the fortnight to November 25, show the latest RBI data.
Note ban has also led to a collection of Rs 66,000 crore, during the same period.
It is not only the common people dealing with the blow-of demonetization. While many of us associate demonetization with long ATM queues and even trauma of withdrawing our own money; it is now the turn of the government and the commercial banks to feel disappointed.
One, the prime objective of recovering huge amount of illegal wealth seems to have hit a roadblock at the moment. 20% less recovery is huge amount. So, are we to believe the many news reports that people are burning cash, or are we to estimate, that people still have wicked tricks to hoard the black wealth. One thing is for sure; the government will need to pull the strings to get the money out.
Is government really planning to send IT notices to people based on a lottery system?
By now it is evident that people have deposited small bricks of cash in Jandhan accounts, in disguise of converting black into white. Then, there are religious institutions, which are trading charities- as these institutions don’t pay tax. These are just few examples, of how people are still hiding their wealth.
Reduced bank credit also means paralyzing the DNA of our banking system.
Do you know the cost incurred by banks to run operations on day-to-day basis?
According to a TOI report, the Reserve Bank of India and commercial banks annually spend around Rs 21,000 crore ($3.5 billion) in currency operations costs. The scale of this burden is unique to India considering that it is among the most cash-intensive economies in the world with a cash-to-GDP ratio of 12%, almost four times as much as other markets such as Brazil (3.93%), Mexico (5.3%) and South Africa (3.73%).
Hit on consumption to weaken state government’s FY17 tax revenues
India is a cash economy. People from all age-groups, social strata, gender, prefer to transact in cash. In addition, many people do not have bank accounts, and even if they do, they do not know how to operate it. Illiteracy, low income, lack of digital awareness, is driving India as a cash-dependent nation. Indian as a digital economy seems a distant reality as of now- as many merchants/vendors do not yet have PoS (point-of-sales) equipment.
TOI report says that citizens of Delhi alone spend Rs 9.1 crore and 60 lakh hours in collecting cash.
Considering that even metro cities like Delhi are cash-hungry, sectors like retail, travel, tourism, jewelry, will experience a temporary hit in sales. Construction and real estate sectors will be majorly impacted.