No ‘one-time gain’ for govt from demonetisation, at least in 2016-17 - Hindustan Times
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No ‘one-time gain’ for govt from demonetisation, at least in 2016-17

Hindustan Times | By, New Delhi
Nov 22, 2016 11:18 AM IST

The demonetisation exercise may not lead to a one-time gain for the government, at least in the current fiscal year, since finance ministry has not made provisions for this, say insiders and experts.

The demonetisation exercise may not lead to a one-time gain for the government, at least in the current fiscal year, since finance ministry has not made provisions for this, say insiders and experts.

According to government estimates Rs 4 lakh crore might not come back into the banking system, after the currency culling began.(PTI)
According to government estimates Rs 4 lakh crore might not come back into the banking system, after the currency culling began.(PTI)

If people do not surrender their old currency notes, the Reserve Bank of India (RBI’s) currency liabilities are lowered. The gains are moved into the central bank’s reserves, which can be transferred to the Centre by way of a higher dividend.

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A higher dividend will mean gains in the government’s hands, which can be used for reducing the fiscal deficit or recapitalisation of banks.

But it is easier said than done.

“Money printed by the RBI, but not surrendered will be treated as ‘unclaimed liability’ in the central bank’s books. It cannot be transferred to the government as dividend,” said a top official in finance ministry, who did not wish to be named.

The demonetisation drive has now entered the third week, and numbers are pouring in from the RBI on the amount of deposits and withdrawals. However, according to the government, around R4 lakh crore may not even come back into the system. This is the amount of ‘black’ money that Indians may not deposit or exchange at banks.

According to government sources, changes will have to be made to the RBI Act to treat this ‘black’ money as a deduction from the central bank’s currency liability. “A cut-off date has to be set when the unclaimed liability will cease to exist and will be removed from the RBI’s liability,” explained another official, who did not wish to be named.

Amendment to the RBI Act can only be done once the deadline for exchanging old currency lapses. This would also require an approval from Parliament, making it difficult for the government to enjoy the windfall of these gains in the current fiscal year itself (2016-17).

The government is yet to decide on what to do with the gains, economic affairs secretary, Shaktikanta Das recently said at a press conference.

But experts point out that if the government had planned in time, it would have an additional 4 lakh crore in its hands, this fiscal.

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  • ABOUT THE AUTHOR
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    Suchetana Ray covers aspects of the government’s economic policy. A news junkie, she is invested in HT’s ‘digital first’ policy.

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