On Black Money Math In PM Modi's Speech, Arun Jaitley Says 'No Confusion'

New Delhi: As Prime Minister Narendra Modi listed his government's achievements in his Independence Day speech, he referred to the amount of black money unearthed after the government's ban on high value notes last year. "The note ban, according to independent research, helped bring Rs 3 lakh crore of unaccounted wealth into the banking system", PM Modi, said highlighting it as one of the successful outcomes of demonetisation. 

"PM Modi said Rs 3 lakh crore are back in the banking system post-demonetisation. The RBI has not finished counting yet, how did the Prime Minister get this figure," senior Congress leader Ghulam Nabi Azad has asked. 

Finance Minister Arun Jaitley said the Prime Minister isn't "writing any article that he will disclose sources," adding, "there isn't any confusion in numbers... there are revenue figures and there are potential revenue gain figures based on internal investigations, notices, responses of the revenue department and CBDT or Central Board of Direct Taxes. It doesn't depend on an RBI report."

A written reply tabled in parliament by the Finance Ministry earlier this month on how much suspicious income was detected after demonetisation puts the total value of seizures and undisclosed income at Rs 18,529 crores. This - so far the latest official figure on unaccounted money seized post the notes ban - is nowhere near the figure mentioned by the Prime Minister in his speech. 

Sources at the Reserve Bank of India (RBI) said the Prime Minister may have referred to a report by some of its economists. "Excess deposits accrued to the banking system due to demonetisation are estimated in the range of Rs 2.8-4.3 trillion (Rs 2.8 lakh crore-4.3 lakh crore)," says the report, which was posted on the RBI website on August 11 with a disclaimer from the Central Bank saying that these are not its official views and that it is merely a study report.

The report says, "Overall, there appears to have been a significant increase in bank deposits due to demonetisation." It does not say anything about unaccounted wealth or black money collected or deposited post demonetisation. It only analyses the pattern of deposits made after November 8, 2016, the day Rs 1000 and Rs 500 notes were abruptly banned, and talks about excess deposits in banks across certain accounts. 

A senior economist who did not want to identified, said, "The question that the paper (study) addresses is the wrong question if we want to know how much black money held in old notes was immobilized or caught. The paper's answer therefore does not even address the black money issue, which was the major objective of demonetisation. Nobody ever disagreed with the expectation that demonetisation will have an immediate positive effect on deposit growth - that is expected. But the question is: how much of the old notes have been exchanged for either new notes or additional deposits after demonetization."

The Prime Minister's speech on Tuesday presented other figures - "Almost Rs 1.75 lakh crore suspicious deposits were made into bank accounts," he said, and that "more than Rs 2 lakh crore of black money has reached the banks." Also, "more than 18 lakh people have been identified whose income far exceeds calculations...now they have to answer for it."

DK Srivastava, Chief Policy Advisor at Ernst and Young, India, told NDTV that these numbers "appear to be estimates."

"So far, neither the finance ministry nor the RBI have made any official announcements on the quantum of black money recovered post demonetisation. The PM may just have obliged us by putting a figure to it which at best may be mere estimates or guesstimates," Mr Srivastava said. 

The PM's reference to 18 lakh people whose income did not correspond to the claims made in their tax returns seems to be sourced from the Finance Ministry reply in parliament. 

But officials in the Finance ministry and RBI told NDTV that they could not say where the Prime Minister's figures on 1.75 lakh crore in suspicious deposits or Rs 2 lakh crore of undeclared income were sourced from. The report by RBI economists says, "The unusual cash deposit in specific accounts, which are usually less active, is estimated to be in the range of Rs 1.6-1.7 trillion."

"The real source is how much money is being deposited... how much of it is unexplained... how many people have deposits disproportionate to their sources... how many people have been given notices... what is the quantum covered by those notices... so the determination of the estimated figure is on that basis," Mr Jaitley explained.