Saturday, 19 August 2017

Response to the Press release by the Ministry of Finance

On 18th August, Ministry of Finance issued a clarification about number of tax payers added post-demonetisation, hoping to set at rest the confusion – and skepticism – that had resulted from four different numbers being quoted by the prime minister, the finance minister, the Economic Survey and the Central Board of Direct Taxes.

Of course, these numbers of 56 lakhs, 5.4 lakhs, 91 lakhs and 33 lakhs as the new tax payers are quite confusing and perplexing. Finally the press release confessed that these numbers denote nothing but “different period and different type of taxpayers”. The maze that the Government has laid is literally tread for any factual unbiased analysis and comparison of these numbers. Even then, let me try to decode this puzzle. 

Number quoted in the Prime Minister’s Speech (56 lakhs)

First, let me first dissect the clarification given to the statement made by the Prime Minister. The clarification is as follows:

“The Prime Minister’s speech referred to the increase in number of e-filed Personal Income Tax Returns (ITRs) filed from 1st April, 2017 to 5th August, 2017 over the ITRs filed in corresponding period of earlier years. The data maintained by the IT Department shows that during 1st April, 2017 to 5th August, 2017, 2.79 crore e-returns of Individual taxpayers were received as against 2.23 crore e-returns received during 1st April, 2016 to 5th August, 2016. Thus, the additional ITRs received in 2017 works out to be 56 lakh. During the same period of 2015, 2.00 crore e-returns were received, meaning thereby, that in 2016, only 22 lakh (rounded off)) additional e-returns were received by the due date of filing. This data has already been put in public domain by CBDT’s Press Release dated 7th August, 2017.”
(Emphasis supplied)

First examine the Prime Minister's speech to see that exactly what he has said.

“The number of new taxpayers filing income tax returns from April 01 to August 05 is 56 lakhs while in the same period last year only 22 lakh filed the returns. In a way it has more than doubled. This is the result of our fight against black money.”

I am not seeing that anywhere in the above statement the Prime Minister is specifically comparing the e-returns as clarified by the Ministry of Finance, instead he is speaking about the new tax payers without qualifying them to e-returns. Also the CBDT press release dated 7th August mentioned in yesterday's press release is also not mentioning about e-returns.

This is the same press release, which was carried my most of the newspapers on 8th August with huge headlines showing that demonetisation finally earned a huge jump of 24% in the income tax returns. In my last blog post I dealt this issue in detail. As of now it is clarified that it is a comparison of the e-returns, hence let us compare the growth of e-filing for the last couple of years from the table provided in the Annual Report of the Finance Ministry (FY 2015-16, Page 228).

The Report explains that “Electronic filing of I-T returns over the internet picked up from AY 2006-07 and the number of returns filed electronically has risen from around 4 Lakh in Financial Year, 2006-07 to 341.73 Lakh in Financial Year 2014-15. In Financial Year, 2015-16, nearly 309.53 Lakh returns were received up to 31st December, 2015 as compared to 243.31 Lakh returns for same period in Financial Year 2014-15, representing a growth of around 27.22%.”

We can see from the above table that the growth of e-returns seen an year to year growth of 74%, 79%, 31% and 38.67%  during the last 4 financial years of Dr. Manmohan Singh’s UPA-2 (2010-2014). Now I leave to your judgment that whether the 25% hike in e-returns in last year, that too based on a selective period, can be attributed as something phenomenal!

Number quoted in the Economic Survey (5.4 lakhs)

This is the clarification given by Ministry of Finance about this number.

“The analysis given in Table-6 on page 22 of the Economic Survey (Vol.2) is based on the data for the period of 9th November to 31st March of 2016-17 and corresponding periods of last two financial years. Moreover, the growth in the number of taxpayers discussed in the Economic Survey is based on the number of new taxpayers assuming the previous year’s growth rate as the reference growth rate. On the other hand, the growth of Individual return-filers referred to in PM’s speech is with respect to new as well as old taxpayers. Thus, the data used in Economic Survey is different from data referred to in PM’s speech in respect of the period of filing as well as the type of taxpayers and the two are not comparable.”

This is one exercise done by Arvind Subramanian, Chief Economic Advisor, which can be close to the truth as far as the real growth in number of new tax payers are concerned. I have dealt this in detail in my last blog post. My take is if he has compared the new tax payers added during FY 2016-17 (80.7 lakhs) with the number added during FY 2014-15 (76.04 lakh), then the above number of 5.4 lakhs will further shrink!

Number quoted by the Finance Minister (91 lakhs)

The clarification by Ministry of Finance for this amazing number of 91 lakhs is as follows:

“The statement of the Finance Minister regarding addition of 91 lakh taxpayers to the tax-base referred to the total number of new returns filed during the entire financial year 2016-17 and therefore, it is neither comparable to the data in PM’s speech nor with the data in Economic Survey (different period and different type of taxpayers).” 

First of all most media reported that time, in unison that Finance Minister on May 17, 2017 then talked about the number of tax payers post demonetisation, not for the entire financial year as saying in the clarification now. This is evident from the news headlines of that day – Times of India, Huffinton Post, NDTV, Live Mint, New Indian Express, Deccan Chronicle, India Today & Zee News– none of which the government controverted.

Another question is while the Economic Survey is speaking about the total number of tax payers for the entire financial year 2016-17 as 80.7 lakhs (See Para 1.85, Page 22, Economic Survey Vol.2) , then the new clarification of 91 lakhs pertaining to the same financial year does not hold water.  Both figures cannot be right!

Number given in the Rajya Sabha (33 lakhs)

Here it is clarified that total number of returns filed between 9.11.2016 to 31.03.2017 is 1.96 crores and it is compared with the same number of returns filed in the previous year during the same period, which comes to 1.63 crores. 

This growth too not something phenomenal when you compare the same period in earlier years. For data comparisons to be meaningful, we should look at the whole financial year rather than at data for a part of the year.

A final word

At the end of the day, there is only custodian for all income tax-related data and that is the CBDT. The board is the institution which has been providing these figures to the prime minister, the finance minister, the chief economic advisor, etc. Instead of waiting for all the data to come in and making a simple apples-with-apples comparison, why has it been throwing different numbers at the people? Is the idea to use data selectively in order to justify demonetiastion? This is the question that the CBDT must answer.

Monday, 14 August 2017

A Fact Check about the Claims of Increase in Income Tax Base and Direct Taxes

On 8th August Morning, most of our newspapers, both national as well as regional ones carried big headlines about the giant leap in the income tax returns received as well as the increase in advance direct tax collections. The media has attributed this huge achievement to the demonetisation executed by the Government, exactly 9 months before on 8th November 2016. Finally, it turned out to be that demonetisation started to reap its benefits to the nation. Naturally the apologists of demonetisation, started to cheer again after a long gap and these news are widely shared over the social media.

But the fact-checker in me became curious with this claim of 24% jump in the number of returns filed. The figure of “2.82 crore returns filed in this assessment year” does not look so huge because I have delved into these data 3 months back for doing an article “Why Duplicate PAN Cards Are Not as Big an Issue as the Modi Government Claims”. Numbers used to stay in my mind, so it came to my memory that there was a Parliament question asked about “the number of returns filed”. I was sure that the number is very close to the figure of 2.82 crores, so this 24% hike looks unbelievable. 

New Definitions of Tax Payers

Also Government recently redefined “tax base”, “tax payers” and “new tax payer added” which are taking into adding the “number of persons from the TDS/TCS deductions are made” with the “number of returns” received in a year. This change was effected by accepting the “Report of the Committee for recommending standard definitions of certain terms” chaired by Sri. Avadhesh Kumar Mishra. So I am quite baffled why the Government is going back to the “number of returns filed” rather than the “number of total tax payers”? All these forced me to do a fact check on the above claims.

Firstly, I searched the Parliament Question database. There is a question on 01.03.2016 in the Rajya Sabha (QN no. 557 asked by Sri. Bhupender Yadav). Government answered that during the AY 2013-14 (FY 2012-13), 2.857 crores individuals in the age group of 25 to 60 years were filed by the income tax returns. No information about the total number of the returns filed in that particular year was shared in the answer. But even this part data of 25 to 60 years age groups of 2.857 crores in FY 2012-13 is higher than the figure of 2.82 crores for last financial year in the news! 

CBDT Press release dated 7th August 2017
Let’s scrutinise the press release by the CBDT dated 7.08.2017 to separate the wheat from the chaff. The newspapers carried headline news based on the above press release. CBDT made an odd comparison of returns filed as on 05.08.2017 with the returns filed during the corresponding period in previous year. Normally, CBDT makes such comparisons based on financial year or assessment year rather than midway on some odd date like what they did in the press release. American writer Rex Todhunter Scot once said, “There are two kinds of statistics, the kind you look up and the kind you make up.” Of course, skewed statistics are always misleading and gives a distorted picture.

The last date for filing income tax returns by the individuals and Hindu Undivided Families (HUF) for this AY 2017-18 was extended from 31.07.2017 to 05.08.2017. Same time, the business assessees who needs mandatory auditing can file their returns up to 30.09.2017. If we look at the income tax return statistics for AY 2014-15 (which is the latest of the assessment year, for which such detailed information of assessees are available, as of today) at CBDT website, the first group comprises of 96% of the total assessees who should file returns within 5.08.2017. The number of assessees under business entities, who is remaining to file returns within 30.09.2017, come only a marginal 4%. Though returns can be filed after due date till one year after the end of the assessment year, it will attract interest and penalties. A new section 234 F is now inserted into the Income Tax Act, 1961 in this regard imposes more fine and make it more rigid.
Number of Tax Payers and Returns
Though this part data comparison of 2.82 crores returns as of 05.08.2017 with corresponding previous year did not hold good, it is important to look at the  number of actual returns submitted in the previous years for a comparison consider the fact, 96% of the returns should be filed within 5.08.2017 deadline. For this, I have relied the CAG Report No. 2 of 2017, Department of Revenue – Direct Taxes (See Table 1.3, at Page 3), which gives the number of actual returns filed by the non-corporate assessees between FY 2011-12 to FY 2015-16. The foot note in the table clearly indicates that the above “figures are based on the actual returns filed during the respective year”.

From the above table, it is clear that the actual number of returns submitted by the non-corporate assessees during the last financial year is 3.98 crores. Due to PAN-Aadhaar linkage insistence and other reasons, a vast majority of individuals filed their returns before the deadline of 05.08.2017. Even then the number is 2.82 crores as per the press release of CBDT, which is only 71% of the total non-corporate assessee returns filed in previous financial year. This data clearly indicates there is no big jump like 24% as claimed is going to happen in the number of returns to be filed within this assessment year. Of course, we have to wait till the end of this assessment year to know the final figures of the same. 

The above surmise is based on the figure of effective assessees for AY 2016-17 (FY 2015-16) published by the CBDT as “Income Tax Department Time Series Data Financial Year 2000-01 to 2016-17” (See Table 1.7 at Page 9). This data is including the “number of people who filed returns” plus "number of people from whom TDS/TCS are deducted” as per the new definition approved by CBDT (See the note at the bottom of the table). We should take note that the total number of returns are nothing but a subset of this data of number of effective assessees. There should be corporate/business entities return will be added to this figure, but that number was just around 16 lakhs during the AY 2014-15, comprising hardly 4% of the total returns.

So let’s look at this data for to see the trend of the number of effective assessees till FY 2015-16 (AY 2016-17). The graph shows that the year to year growth of the number of effective assessees is falling from 11.78% in AY 2013-14 to 7.08% in AY 2015-16 where final data are available. The provisional data for AY 2016-17 showing that it is further declined to 2.34%. So a comparison with last couple of years are imperative to compare the present AY figure rather than a part data with FY 2015-16. The Effective Assessees shown a downward trend from a year to year growth of 11.78% in 2013-14 to last 3 consecutive years. So any comparison with AY 2016-17 (FY 2015-16), which shows one of the lowest year to year growth, is not going to give you any correct picture. All these indicators and “part data of 2.82 crores returns” released by CBDT for last FY 2016-17 clearly denotes that there is not any substantial jump in the total number of effective assessees or number of returns filed, if we consider the whole financial year or assessment year as the yardstick for comparison. 

Another document which leads light into the number of tax payers is the Economic Survey Vol. 2 (See Page 22). It discuss as follows:

“1.85 Did the signalling effect of demonetization—namely that there would be decreased tolerance of tax non-compliance highlighted in the Union Budget for 2017- 18—have an impact on tax compliance? According to the tax data, the number of new individual tax payers (based on returns filed) increased from 63.5 lakh in 2015-16 to 80.7 lakh in 2016-17. But all this increase cannot be attributed to demonetization because there is some natural trend increase in new taxpayers. Instead, this impact by measuring the increase in taxpayers in the post-demonetization period (Nov. 9, 2016-end-March 2017) relative to the increase in the same period the previous year is estimated.  
1.86 As the Table 6 shows, the growth of taxpayers post-demonetization was significantly greater than in the previous year (45 percent versus 25 percent). The addition amounted to about 5.4 lakh taxpayers or 1 percent of all individual taxpayers in just a few months. The addition to the reported taxable income (of these new payers) was about Rs.10,600 crore. So, the tax base did expand after demonetization. It is, however, interesting that the average income reported of the new taxpayers-Rs. 2.7 lakh- was not far above the tax threshold of Rs. 2.5 lakh, so the immediate impact on tax collections was muted. The full effect on collections will materialize gradually as reported income of these taxpayers grows.”

Here Economic Survey trying to be modest, but same time trying to prove that there is some influence on demonetisation. Economic Survey put the number of new tax payers have increased after demonetisation as 5.4 lakhs or just 1% of all individual tax payers. This 1% may be a round off to the single digit with respect to the total tax base, because we have seen from the other table that 6.27 crores total tax payers are there in FY 2015-16. But even Economic Survey conveniently shut its eyes to the number of tax payers added in the previous year 2014-15 where in 76.04 lakh new tax payers were added, while last year added only 80.7 lakh new tax payers and which was compared with 2015-16 figure of 63.5 lakh. 

Please see the Annual Report of the Ministry of Finance (FY 2015-16, Page No.155). So even the modest figure looks gloomy in this background. So if correlate it with FY 2014-15 data, instead of FY 2015-16 figure, we can see that additional tax payers added will shrink to just 1.4 lakh people! 

So final take is that there is nothing substantial to boast about the new tax payers added due to demonetisation as the number is so insignificant. Once CAG finalises the audit of FY 2016-17, we will get a real picture and we can wait for the same.

Direct Tax Collection

Tax revenue resources of the Union Government consist of revenue receipts from direct and indirect taxes, which are now almost in the ratio 1:1 for the last financial year as per CBDT statistics.

Direct taxes levied by the Government mainly comprises:

i. Corporate Tax levied on income of the companies;
ii. Income Tax levied on income of persons (other than companies);
iii. Other direct taxes incl Wealth Tax, Securities Transactions Tax, etc.

As per the latest data released by CBDT, these taxes are distributed as Corporate Tax (57%), Personal Income Tax (41%) and other direct taxes (2%).

There are different mode of direct taxes collection {Tax deducted at source (TDS), advance tax, self-assessment tax, regular assessment tax} in respect of both corporate and income tax. Collection through advance tax, self-assessment tax and TDS is largely indicative of degree of voluntary compliance in the system. Collection of tax through regular assessment mode occurs on assessment. The division various components of direct taxes for FY 2016-17 is as shown in the pie chart.

CBDT press release made another claim on direct tax collections:

“The effect of demonetization is also clearly visible in the growth in Direct Tax Collections. Advance Tax collections of Personal Income Tax (i.e. other than Corporate Tax) as on 05.08.2017 showed a growth of about 41.79% over the corresponding period in F.Y. 2016-2017. Personal Income Tax under Self-Assessment Tax (SAT) grew at 34.25% over the corresponding period in F.Y. 2016-2017.”

So this statement is talking about a convenient truth, that too about a part data series. “Advance Tax” is around 41% of the total direct tax component, as we see from the above Pie Chart. Then “personal income tax” is also 41% of the total direct taxes. So here, CBDT conveniently talking about 41% of personal income tax component of the advance tax, which is also 41% of the direct tax. Hence net effect of the advance tax of the personal income tax component comes around 16% of the total direct tax collection. Similarly, self-assessment tax is just 8% of the total direct tax collection and when we consider its personal tax component, it will shrink to 3.3% of the direct tax collection. So here, the CBDT is just doing cherry picking of the 20% of value of total direct tax collection and comparing it with some arbitrary date, while totally silent about rest 80% of value!

Why CBDT is not speaking about the corporate tax and other components or about the entire direct tax component instead of this cherry picking? The answer lies in another press release by CBDT dated 6.07.2017, soon after first quarter direct tax collections ended in June 2017.

Closely examine the first paragraph:

 “The provisional figures for Direct Tax collections up to June, 2017 show that net collections are at Rs. 1.42 lakh crore which is 14.8% higher than the net collections for the corresponding period of last year. Net direct tax collections represent 14.5% of the total Budget Estimates of direct taxes for F.Y. 2017-18 (Rs. 9.8 lakh crore).”

Here, the picture is clear, the direct tax collections grow at 14.8% than the corresponding quarter during previous year. But please look at the larger picture, Government was in receipt of only 14.5% of total budget estimate for FY 2017-18 in the first quarter, wherein the collections should be around 20% normally. CBDT was only able to collect only 1.42 lakh crores towards direct taxes in the first quarter against the estimated budgeted target of 9.8 lakh crores for FY 2017-18. This is an under realisation of the estimate target? I am leaving the answer to your own judgement.

But this warrants a close examination of direct taxes collection over the last six years and its year to year growth, which is provided by CBDT in “Income Tax Department Time Series Data Financial Year 2000-01 to 2016-17” (See Table 1.1 at Page 2).

So the total direct tax collection recorded during the first quarter at 14.8% is only a marginal improvement over the last FY’s year to year growth component of 14.54%. From the above graph we can see that the direct tax collections showing a steady upward trend from 2011-12 (10.7%) to 2012-13 (13.6%) to 2013-14 (14.24%) during the UPA-2 regime under Dr. Manmohan Singh. But during the NDA regime under Narendra Modi, the year to year growth fallen to 8.96% in 2014-15, 6.63% in 2015-16 and shows some recovery of 14.54% during 2016-17, but it is based on a low base in 2015-16. If the direct tax collection followed the same trend in Dr. Manmohan Singh era, take it as 14% for next 3 years, it would have touched 9,46,108 crores instead the present collection of 8,49,818 crores!

Also the figure of 8,49,818 crores should be taken with a pinch of salt as there was an Income Disclosure Scheme (IDS-2016), which resulted a disclosure of 65,250 crores prior to the demonetisation. As the tax collected from this scheme is 45% of the disclosed amount, it would be 29,362.5 crores. Also it is mandatory to pay 50% of the above tax in two instalments in the last financial year and remaining 50% before this September end. So there was a component from IDS amounting to 14,861 crores was part of the direct tax component in last financial year. I am not considering the Pradhan Mantri Garib Kalyan Yojana (PMGKY) which was announced after demonetisation, which turned out to be a damp squib. As per newspaper reports, the direct tax collected under this head was only 2300 crores though it was expected to collect anything between ₹50,000 crores and ₹1,00,000 crores! So if we remove the component of IDS-2016, the direct tax increase of year to year even from a low base of FY 2015-16, is reduced from the 14.54% to 12.56%!

To summarize:

  • Any amount of increase, even the marginal 5.4 lakh new tax assesses or 1% of the total income tax base presented in Economic Survey will further shrink to just 1.4 lakh tax payers, if it is corroborated with FY 2014-15, wherein 76.04 lakh new tax payers were added to the tax base.
  • Tax collections were already under a steady growth till 2014 and in fact was growing 14% in FY 2013-2014. But it had a sharp drop in FY 2014-15 & FY 2015-2016 period, which has now rebounded to FY 2016-17 to above 4%. But if we consider the contribution due IDS-2016, this will further drop to 12.56%.

  • Taking above two together, there is neither a sudden surge in number of people paying taxes nor amount of taxes that are collected by the government which can be seen as a breakthrough. For that, we have to wait for few more, hoping that the government doesn’t change the methodology in between. 

So all these hard data from the CAG, CBDT and MoF proves that there was no substantial increase in the number of new tax payers or direct tax collection due to demonetisation. The CBDT with its selective press release, helped the Government to manage headlines. As usual our gullible main stream media became mere stenographers and amplifiers carried the news with thick headlines without any fact check. We are still waiting for the Government to come out with at least one single area where this demonetisation benefited the economy, of course, based on solid data rather than shoot and scoot with half-baked data. 

Wednesday, 11 January 2017

Fake Currency and Security Features in the New Currency

Our Prime Minister on 8/11/2016 when he announced the demonetisation of high value denominations, told to the nation that:

“Terrorism is a frightening threat. So many have lost their lives because of it. But have you ever thought about how these terrorists get their money? Enemies from across the border run their operations using fake currency notes. This has been going on for years. Many times, those using fake five hundred and thousand rupee notes have been caught and many such notes have been seized.”

Demonetisation announced by the Government is welcomed by many Indians since they viewed it as a panacea for all the ills like black money, terrorism abetted by the fake currency, etc. There were a lot of Indians believed that there are lakhs of crores of black money and fake currency in the system. In the initial weeks of demonetisation, a narrative sold by the evangelists of demonetisation was that black moeny and fake currency (Fake Indian Currency Note – FICN) are so rife and argued that it is almost 30-40% of the total currency in circulation. RBI data shows that as on 4/11/2016, the currency in circulation was ₹17.975 Lakh crores. We have later informed in the Parliament that out of this 86%, ie, ₹15.44 Lakh crores are of high denomination notes of ₹500 and ₹1000. So many believed that the quantity of fake currency is anywhere between 4-6 lakh crores!

FICN Estimates

Now let’s examine the quantity of FICN in the currency in circulation from Government's own database. Minster of State for Finance disclosed in the Parliament (Lok Sabha, Unstarred Question No.3285 05.08.2016) that:

“A study on Fake Indian Currency Notes (FICN) issues, including estimation of FICN in circulation, has been undertaken by Statistical Institute (ISI), Kolkata under the overall supervision of National Investigation Agency (NIA). As per the study, the face value of FICN in circulation was found to be about Rs. 400 crores. It was found the value remained constant for the last 4 years.”

Yes..the Government's own agencies estimated the quantity of FICN as just 400 crores, not even the amount run in to thousand of crores, forget the lakh crores propagated. This ₹400 crores is only 0.02% of the currency in circulation.Though it is a small quantity, FICN is being used for various subversive activities such as espionage, smuggling of arms, drugs and other contraband in India. As per the NIA probe, which has a Terror Funding and Fake Currency Cell, Pakistan is the major supplier of FICN in India. 

Wednesday, 21 December 2016

A monumental disaster in offing!

Currency in Circulation 

High denomination notes of ₹500 & ₹1000, which is 86.4% of the total currency in circulation ceased to be legal tender due to the demonetisation. RBI denotes these demonetised notes as “Specified Bank Notes” (SBN). As per RBI Annual Report 2015-2016, as of 31/03/2016, the value of the total SBN is ₹14.18 lakh crores. Volume wise it consists of 15707 million ₹500 notes and 6326 million ₹1000 notes, ie, a total of 22033 million notes. Meanwhile, the total currency in circulation value wise increased to ₹17.975 Lakh crores (4/11/2016) from ₹16.415 lakh crores (31/03/2016)

Exact information of the amount of SBN as on 8/11/16 is now in public domain, thanks to a question-answer in the Rajya Sabha, which shows 17165 million pieces of ₹500 (₹8.582 lakh crores)and 6858 million pieces of ₹1000 (₹6.858 lakh crores) in circulation (Total Value: ₹15.44 lakh crores Total Volume:24023 million pieces) [So my assumptions in my earlier post  of value of 15.5 lakh crores and volume of 24000 million is almost in the target]. To print and replace 24023 million (24.023 billion) notes is an enormous challenge considering this sheer volume of notes to be printed and capacity of our printing presses.

Saturday, 17 December 2016

₹500 NOTE – Pivot note of the currency in circulation

On 8/11/2016 around 8.30 PM, our Prime Minister made a theatrical announcement through the television channels that:

“To break the grip of corruption and black money, we have decided that the five hundred rupee and thousand rupee currency notes presently in use will no longer be legal tender from midnight tonight, that is 8th November 2016. This means that these notes will not be acceptable for transactions from midnight onwards. The five hundred and thousand rupee notes hoarded by anti-national and anti-social elements will become just worthless pieces of paper. The rights and the interests of honest, hard-working people will be fully protected. Let me assure you that notes of one hundred, fifty, twenty, ten, five, two and one rupee and all coins will remain legal tender and will not be affected.”

[Click   Then go to 8th November 2016 and look for "Text of Prime Minister’s address to the Nation"]

After two days of this announcement, I exchanged couple of ₹500 & ₹1000 notes at a bank counter. In return, I received two new pink ₹2000 notes. When I tried to exchange these new pink notes for change, I realised that there was hardly change for that and people are holding the lower denomination notes as a precious commodity. The next lower denomination available for change is ₹100 note. That means you need 20 nos. of ₹100 note to get change for the new ₹2000 note. Due to scarcity of change, I soon realised that the lower denominations notes in the system are not able to meet the liquidity demand.

This was the reason for me to visit the website of  Reserve Bank of India (RBI) to find the distribution of each denomination notes existing in the system. Each year, RBI, in its Annual Report publishes the statistics of the total currency in circulation by March end; and information is provided denomination-wise. Also, every week RBI publishes the total currency in circulation. However, this data is limited to the total currency in circulation and not sharing denomination-wise distribution as in the annual report. The table below is reproduced from the RBI Annual Report of 2015-16.

My disclaimer

This is my disclaimer.

Before start reading my blog, you should kindly go through this.

I am not an economist. I am a civil engineer by profession.

Before 8/11/2016, I seldom bothered about currency or RBI and not used to read anything related to them. Yep, that day, when our Prime Minister came to the TV channels around 8.30 PM and made that theatrical announcement, with all his trademark gesticulations and dramatic voice modulations, to demonetize ₹500 & ₹1000 notes and introduced ₹2000 note as a panacea for eliminating the hoarding and black money.