Dwelling on the success of demonetization [announced on November 8, 2016], Prime Minister Modi informed the nation from the ramparts of historic Red Fort on August 15, 2017 that the government had cancelled the registration of over 200,000 shell companies [nick name for entities which are engaged in laundering black money]. He reiterated this on October 5, 2017 in his speech at the annual function of the Institute of Company Secretaries of India [ICSI] alluding to the axe falling on another about 100,000 such companies.
These companies were identified while examining data on deposits made post-demonetization using advanced data analytics technique. Taking the process forward – in its all out war against black money and corruption – the government had asked banks to give information on transactions of such suspicious companies whose names were struck off the Register of Companies [RoC].
In this regard, a release by ministry of corporate affairs on November 5, 2017 says “Preliminary enquiry on the basis of information received from 56 banks in respect of 35,000 companies involving 58,000 accounts has revealed that an amount of over Rs 17,000 crore was deposited and withdrawn post demonetization,” In one case, a company which had a negative opening balance on November 8, 2016, deposited and withdrew Rs 2,484 crore post demonetization.
One shudders to fathom the ramifications of above revelations. A packet [containing 100 pieces] of 1000 rupee note makes up Rs 100,000 or 1 lakh. To get Rs 1 crore, we need to have 100 such packets. Likewise, a packet [100 pieces] of 500 rupee note makes up Rs 50,000/. For Rs 1 crore, we need to have 200 such packets. With these basics, let us gauge the physical dimension of what happened.
If, all of Rs 17,000 crores deposited post-demonetization were to be in 1000 rupee denomination, it would need 1700,000 crores such packets. If, the amount were to be in 500 rupee denomination, the number of packets required would be 3400,000 crores. The hoarders of black money would have carried so much of humongous notes to the banks. While, most persons carried in suitcases, some would have carried truck loads of currency notes. In one such case cited by the ministry, the amount deposited and withdrawn being Rs 2,484 crore or Rs 2500 crores, this works out to 250,000 packets of 1000 rupee notes; alternatively, 500,000 packets of 500 rupee notes!
By any stretch of imagination, the cash being brought in suitcases/truck loads could not be genuine savings or money kept at home for legitimate business transactions. Clearly, it was black cash and should have been blocked by the bank authorities. Concurrently, Income Tax [IT], Enforcement Directorate [ED] and CBI should have initiated scrutiny [matching with returns filed etc]. The bank must not have allowed withdrawal till scrutiny was complete.
On completion of the scrutiny, there was a compelling case for appropriation of the entire deposit – to cover tax plus interest plus penalty – and ask the depositor pay more to make up for the deficit, if any. But, this was not done and the money was allowed to be withdrawn as new currency [a crystal clear case of converting black money into white using none other than the bank as conduit]. This was a serious lapse which is unconscionable and unpardonable and could not have happened without full cooperation of the bank.
Citing the benefits of demonetization, the finance minister, Arun Jaitely has stated that ‘all of the unaccounted money now has an address’. But, this does not instill confidence as what prevents an offender/conspirator [acting in collusion with bank manager] giving fake address, PAN number etc. In that scenario, getting hold and making those money launderers pay up is going to be a daunting task.
In case, the authorities are not able to trace those launderers, the amount withdrawn Rs 17,000 crores would be as bad as lost. Had this money remained with the hoarders as old 1000/500 rupee notes, this would have been destroyed representing a gain to Reserve Bank of India [RBI] and in turn, to union government – being its owner. But, in the instant case, authorities have got nothing.
As Modi mentioned in his August 15, 2017 speech, unaccounted cash deposited in banks post-demonetization was about Rs 300,000 crores. Of this, even as Rs 17,000 crores was withdrawn, the information on rest of the money is yet to come. If, that amount were also to meet the same fate, this would be disastrous. Hopefully, this may not be the case and bulk of the money is still lying in the accounts.
Two things must be done on top priority. First, the IT along with other investigation agencies should complete scrutiny of all suspicious transaction within a set deadline – not exceeding three months. Till then, no withdrawal from these accounts should be permitted. Once this process is over, the money in the account should be appropriated towards applicable tax and penalty. If, need be, the depositor should be asked to bring the deficit.
Second, in cases, where the money had already fled from the bank, IT/ED/CBI/FIU [financial intelligence unit] in finance ministry should go for a witch-hunt. While, things may not be that difficult where the launderer left correct address/PAN number, in cases where the address given was fake, the agencies will need to put in extra efforts to trace and make them pay up.
Prime Minister should go in a mission mode to ‘DELIVER’ or else critics will have a heyday debunking demonetization as something that did not serve its intended purpose.