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Black money hoarders also hit by demonetisation: Economic Survey

Economic Survey for 2017 presented on Tuesday said though India's lower middle class and rural population may have been the worst hit by move, black money holders also suffered in the process.
India TV Business Desk New Delhi February 01, 2017 8:01 IST
India TV Business Desk

Examining the government's recent demonetisation measure to combat black money, the Economic Survey for 2017 presented on Tuesday said though India's lower middle class and rural population may have been the worst hit by move, black money holders also suffered in the process.

It also attempts to measure how much cash was being used as black money through the criterion called "soil rates", to guage how how dirty the notes were from repeated use.

"Demonetisation has been a redistributive device to transfer illicit wealth from the rich to the rest, via the government. In the short run at least, the costs are being borne to a great extent by those in the informal/cash-intensive sectors that tend to be less well-off than the rich," said the Survey authored by Chief Economic Advisor Arvind Subramanian.

"In one sense, this could be thought of as inefficient redistribution. So, if, subsidies have been an inefficient way of redistributing toward the poor, demonetisation could be seen as an inefficient way of redistributing away from the rich," it added.

According to the Survey, there was massive money laundering by those with undisclosed wealth, using means like back dated receipts, among others.

"In all these cases, black money holders still suffered a substantial loss, in taxes or 'conversion fees'.

"Perhaps the most conclusive evidence on the extent to which Rs 500 and Rs 1,000 notes are used for transactions comes from data on 'soil rates', that is the rate at which notes are considered to be too damaged to use and have been returned to the central bank.

"Using relative soil rates for the $50 and $20 notes and applying them to comparable Indian high denomination notes, yields an estimate of the amount not used for transactions, and hence potentially black, of about Rs 3 lakh crore. This is substantial, as it represents about 2 per cent of GDP," it said.