The Income Tax Department has for quite some time before demonetisation asked banks and financial institutions to report high value cash deposits above Rs 50,000 which can only be made against Permanent Account Numbers (PAN) and cumulative annual cash withdrawals of over Rs 50 Lakhs from current accounts. This is to keep track of the black money which is continually circulating in and out of the banks. That is, there are privately held stashes of black money with people but parts of it continually go into banks and cash from banks come into these stashes as part of economic activities as it is inefficient to hold the black money in a dead storage. Similarly the Income Tax Department has asked for all high value purchases, especially of property, cars etc and foreign trips to be reported. People have found ways to get around this, primarily by registering multiple PANs and using shell companies to layer their financial transactions. However, with powerful data analysis tools it is possible to track all these also. What is required for this is human power to track all these potentially black money generating transactions. Indeed, demonetisation by itself did not yield anything and it is only through tracking of the deposits made above the limits, that unaccounted income is now being unearthed but that too in a trickle compared to the huge estimates of black income of Rs 60 lakh crores, assuming conservatively that the black economy is 50 percent of the GDP. Even compared to the amount of black money in circulation of about Rs 7.5 lakh crore at the onset of demonetisation, the amount of unearned income revealed is a pittance. Now duplicate PANs and shell companies are being weeded out but this could have been done earlier also instead of launching the demonetisation exercise and wasting money on it and inconveniencing the public with the huge disruptions caused by it.
Under the Operation Clean Money exercise following on demonetisation, about 18 lakh accounts were identified with excessive deposits of demonetised notes above the permissible limits though the Government in its wisdom has revealed neither the total amount of money so deposited nor the distribution by amounts deposited. Since the Income Tax Department does not have adequate personnel to track all these deposits, it followed the electronic route to get responses from these account holders explaining their deposits and about 9 lakh have filed responses. After further scrutiny the Income Tax department in the second phase has now zeroed in on just 60,000 of these account holders as being high risk persons who will find it difficult to account for their deposits. If the data being reported by banks and financial institutions for quite some time now regarding high value cash deposits and withdrawals had been diligently tracked, all these suspect account holders and many more could have been unearthed.
The conclusion is that demonetisation was an unnecessary and costly exercise which by itself has yielded very little and whatever little it has yielded is through diligent tracking which could have been done earlier also and which has now become the norm but as before is hampered by the lack of adequate staff and other resources. Especially since demonetisation has had little impact on the generation of black money which is going on apace and had started immediately with the new notes that were released to replace the demonetised ones.