Demonetization : Bonanza already started?

There has been a lot of disinformation on the quantity of black money (unaccounted money) in the system in the form of bank notes in India.

The drive towards identification of owners to bank notes started on 10th November 2016, when the banks reopened for business after unscheduled holiday on the 9th. Already it is reported in Media that the local body tax collection is up 4 times in November as compared to last year as people can still pay property tax in old currency.

It is possible that even central government has started reaping benefits of the drive. The table below shows the surplus cash balance with Government of India (GoI) on the second last working day of the month.

Table 1: The Surplus Cash with GoI

Billion CY16 CY15 Increment in CY16
November 1,433 690 742
October504 783 (279)
September 282 427 (146)
August52 132 (81)
July- 11 (11)
Source: Decimal Point Analytics

Usually the surplus cash with GOI spikes at the end of December and again at the end of March on account of income tax payments. This spike in the month of November is pretty unusual. The increment of approximately 1 Trillion in the month of November 2016 post November 81 and also as compared to trend variation over 2015 can possibly be explained by tax payments by people who were forced to disclose their wealth now. It can be imagined that the initial deposits were mostly genuine deposits, with the ill-gotten wealth holders likely to wait till the last moment. Now with the new tax law coming in force on November 29, we estimate that the amount of tax collection could end up being between 3 Trillion and 5 Trillion by end of December, by which date people have to disclose their cash holdings or risk losing all of it.

1On November 8, the surplus was 355 billion

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