Demonetization 2016 links: Black money expert’s take, Deaths, Banker’s tales, cashless villages and much more

  • There was this nice joke circulating on whatsapp saying how post demonetisation, number of economists had risen. This was shown via a graph. It is all so confusing at the moment. Don’t bother. Read this interview of Prof Arun Kumar whose work has been on black money. He says we have made progress and should tread slowly on such tricky matters. He discusses things like black income, black wealth etc.

Manas Roshan: Do you think the Modi government’s decision to demonetise large currency notes will curb the flow of black money or illegal wealth?
Arun Kumar: This will demobilise the stock of black wealth or a part of it, but it will not stop the flow. Because for that you’ve to stop black income generation. What happens in an economy is that you have an income, which you save, and savings are what accrue to form wealth. Income needs to be distinguished from wealth, and black money should be distinguished from black income. Black money is only a small part of the black wealth that has been accumulated.

MR: Can the effect of such a move be quantified?Data released by the Reserve Bank of India(RBI) in 2016shows that over 80 percent of the currency in circulation is in the form of Rs 500 and Rs 1000 notes, which is about Rs 13 lakh crore.
AK: Of Rs 13 lakh crore, at least half would be used in businesses: petrol stations, railway stations, airports, etc. What may be held in households may be only 5-6 lakh crore [rupees]. Now, assuming that the top 3 percent of the population owns much of the black wealth, that would amount to only Rs 1.5 lakh held per person. So the immobilised cache of black money is just Rs 2-3 lakh crore.

According to my calculation, which will be out in [the journal] the Economic and Political Weekly, the black economy increased to 62 percent of the GDP [gross domestic product] by 2013, which is Rs 90 lakh crore [A 2014 National Institute of Public Finance and Policy report estimated that domestic black money was equal to 70 percent of the GDP—approximately 90 lakh crore].That’s why my estimate was that the black “money,” or cash component, immobilised is only 3 percent of the total black income generated this year.

Black income generation will continue because there are a large number of mechanisms by which it is generated, which may or may not depend on cash circulation.

2 Responses to “Demonetization 2016 links: Black money expert’s take, Deaths, Banker’s tales, cashless villages and much more”

  1. Shekhar Midthanpally Says:

    Hello Sir,

    Can we expect Non performing assets to come down with demonetisation?

    Even after assuming that all the unspent credit was siphoned off and converted to accounted money, will defaulters use this chance to clear up their dues using unaccounted money to increase their credit score?

    after all, with demonetisation and lower interest rates, credit is expected to grow. will defaulter use this opportunity to increase credit score now and again repeat the cycle?

    Thanks!

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