DNA Money Edit: Digitisation the way ahead to eliminate black money, fake notes

After the government's sudden move to demonetize high-value currency notes in November 2016, 99% of the Rs 15.44 lakh crore scrapped currency notes have returned to the central bank. Even when the immediate gains look minuscule and the disruption in terms of the economic growth significant, the government managed to clean up the entire cash economy just before it rolled out the biggest-ever tax reform, goods and services tax (GST). Economists believe that there has been an improvement in compliance, both in direct and indirect taxes. Even if it may look a little ominous for first two to three quarters for some sectors, note ban is likely to have a long-term positive impact on the organised sector.

With 99% of the demonetized notes having returned, it can be construed that the black money kept in hard currencies has either moved to other asset classes like gold or real estate or that India doesn’t have a huge cache of black money. The income-tax department is closely scrutinising some bank accounts that saw unusually big transactions.

A nation-wide exercise by the RBI to estimate the density of fake Indian currency notes post note ban showed 7.1 pieces in one million pieces of Rs 500 denomination and 19.1 pieces in one million pieces of Rs 1,000 denomination were counterfeit. As finance minister pointed out, India is predominantly a high-cash economy and that condition needed to be altered in order to give a blow to black money. The expansion of the economy through digitised mechanism is vital to obliterate black money as well as counterfeit notes. The government needs to devise ways to strengthen the process of digitisation.