White is White and Black is Black: Can Black ever become White?

General Elections close by, all eyes are on freebies, cash rollouts, and black money getting white. At the time of demonetization, NDA government pledged to unearth all the black money and punish the hoarders. Two white papers were released prior to demonetization: one, by the World Bank and the other by the NIPFP. 

As the White Paper on Black Money published in May 2012 points out: "The last official study for estimating black money generation was conducted at the behest of the Ministry of Finance by the NIPFP [National Institute of Public Finance and Policy] in 1985."

In 2010, the World Bank came up with estimates of the size of black money in India between 1999 and 2007. Prior to demonetization, Union Ministry of Finance released a White Paper on Black Money mentioning the undisclosed income and the value of assets seized as black money need not be hoarded in cash alone but also in jewelry and other assets. 

According to the World Bank, Black money as percentage of GDP is presented in the following table.

Table 2: Black Money as percentage of GDP (up to Nov. 2015)

For a few years post demonetization, there was lot of debate both academically and otherwise. For reasons best known, soon after demonetization, new denomination Rs.2000 notes were released. It has protected many to stash back the black money and turn into white and it helped the elections of 2019 General Elections. All parties were gainers. Perhaps arising out of such realization, the recently stuck down Electoral Bonds were released. Then the RBI recalled all the Rs.2000 notes to make sure that the cash economy is converted to digital economy. Has digital economy wiped out the cash economy? The answer is a large ‘No’ and a small ‘Yes’. 

Several state elections during the last decade saw cash distribution, liquor supply and other freebies to the voters. RBI notified that 98 percent of the Rs.2000 notes have been turned back into the banks’ vaults and they are just not available for circulation. Have the Rs.500 notes replaced the gap? Doubtful. But one fact is clear. Thanks to digitization, beggars to bankers, most people transact through QR coded valets. We saw the disaster of the Paytm valet and its holder, Paytm Payment Bank that is declared bankrupt and all the depositors are protected through a transfer to one of the RBI-notified Banks.

While none knows the latest black money figures, its existence is undeniable. This still has the potential to influence the voters and all the parties unexceptionally possess it though proof is just unavailable like in several financial crimes.

Annual Reports of the Union Finance Ministry reveal the following:

The Centre for Monitoring the Indian Economy estimated in November 2015 that the transaction cost of demonetization was Rs.1.28 lakh crores.

After 2016, Annual Reports of the Union Ministry of Finance did not reveal any black money hoarding. Noticing that there is a huge gap between Rs.100 denomination notes and Rs.2000 notes, Rs.200 denomination was introduced on 25^th August 2017, on public demand. RBI should be credited to have resolved the inefficiencies in handling the ATMs by the banks and white ATMs were also set up. SBI ran ATMs on boats too.

With the onset of digital operations, cyber crimes took the toll of the economy and those who lost crores of rupees are still waiting in the wings for their valets to refill. The way the crimes are done and investigations are carried out leave little hope on that front. Where is all this stolen money stashed? The colour of money has changed again from white to the black through this backdoor.

Earlier, since the notes had numbers and the release of currency by the RBI is recorded, an effort at the seizure of black money was possible. Now, it is next to impossible to undertake such a task. Even the white paper on the Indian Economy recently released by the Finance Minister is silent about this issue conveying the impression that it is no issue for the government. Can we expect that the rosy future we all await because of the introduction of Gati Shakti, Vikasit Bharat, and the hopeful predictions of all the international credit rating agencies, IMF, OECD, ADB, and the World Bank would make us dream of all the money in circulation will be white and white only? Let us hope.

By Dr Yerram Raju. The Author is an economist and risk management specialist. He is the Former Dean of Studies, ASCI and Founder Director of Telangana Industrial Health Clinic Ltd. The views are personal.

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