Rs 2 Lakh Crore Could Be Government's Gain From Note Ban: Report

Since demonetisation was announced on November 8, how much old 500 and 1000 rupee notes will not come back into the banking system has been a subject of intense speculation. The economic research department of SBI expects Rs 2.5 lakh crore not to come into the banking system.

According to SBI's estimates, Rs 13 lakh crore worth of banned notes might be deposited in the banking system out of the total value of high denomination currency in circulation (before November 8) worth Rs 15.5 lakh crore. This means that around Rs 2.5 lakh crore might not be coming back into the system, the bank said in a report. 

Of the total Rs 2.5 lakh crore not coming into the banking system, the amount not coming back altogether due to unlawful activities, for example, could be around Rs 1.5 lakh crore, the report said.  

"We conservatively assume that Rs 1,500 billion (Rs 1.5 lakh crore) will not be disclosed by the individuals and this will purely be an extinguished currency liability," the report said. 

Soumya Kanti Ghosh, the author of the report and group Chief Economic Adviser at SBI, told NDTV Profit that the extinguished currency liability is among the things "that the RBI and the government need to work out." 

Since demonetisation was announced on November 8, how much old 500 and 1000 rupee notes will not come back into the banking system has been a subject of intense speculation. The economic research department of SBI expects Rs 2.5 lakh crore not to come into the banking system.

According to SBI's estimates, Rs 13 lakh crore worth of banned notes might be deposited in the banking system out of the total value of high denomination currency in circulation (before November 8) worth Rs 15.5 lakh crore. This means that around Rs 2.5 lakh crore might not be coming back into the system, the bank said in a report. 

Of the total Rs 2.5 lakh crore not coming into the banking system, the amount not coming back altogether due to unlawful activities, for example, could be around Rs 1.5 lakh crore, the report said.  

"We conservatively assume that Rs 1,500 billion (Rs 1.5 lakh crore) will not be disclosed by the individuals and this will purely be an extinguished currency liability," the report said. 

Soumya Kanti Ghosh, the author of the report and group Chief Economic Adviser at SBI, told NDTV Profit that the extinguished currency liability is among the things "that the RBI and the government need to work out." 

Out of the Rs 2.5 lakh crore, Rs 1 lakh crore could be disclosed under the recent self-declaration of undisclosed income scheme, the report said. Under the scheme, taxpayers may declare undisclosed income by paying around 50 per cent tax.  "This means there will be an immediate short term benefit to the government will be Rs 500 billion (Rs 50,000 crore)," the report said. 

"We believe that taxes collected will be beneficial to the government rather than currency getting extinguished as such taxes could be immediately factored in next year budget for welfare needs," the report said. 

This means on the RBI's balance sheet, the liability in the form of notes issued gets extinguished to the extent the banned notes are not deposited.

Mr Ghosh said that at this juncture it is too early to talk about how fast the Indian economy would rebound from the anticipated slowdown caused by demonetisation. 

It depends on how fast the withdrawal limits are relaxed, he said.