Modi Govt to give ‘cashback’ on black money destroyed?

jandhanHe may not be able to deliver the Rs 15 lakhs, but according to a media report, Narendra Modi’s government is thinking of transferring at least part of the black money destroyed through demonetization to Jan Dhan account holders.

Jan Dhan accounts were opened in 2014 by economically weaker sections of the population who did not have any bank accounts at the time.

However, many of the Jan Dhan accounts, which did not have any balance in them, have seen deposits of up to Rs 49,000 in the last one week.

According to a Deccan Chronicle report, these people — who deposited money in the last one week — are unlikely to get the cash deposit.

An estimated 2 lakh cr of black money is likely to be seized or destroyed as part of the ongoing demonetization move.

There are 5.8 cr Jan Dhan accounts into which people have not put in any money.

The government is thinking of transferring Rs 10,000 cash into each of these account.

The total expense would be 58,000 cr — or about one-third to one-fourth of the total expected black money recovered from the demonetization move.


The move is likely to be controversial as black money seized belongs to all citizens and not just to Jan Dhan holders.

If the money is not transferred, but simply destroyed or allowed to lapse, then the purchasing power of every rupee held by every citizen in India will rise by around 15%.

This will ensure that the benefits of the demonetization scheme accrues to all citizens in proportion to the savings that they hold. In other words, those who have more savings will get a bigger reward compared to those who have less.

However, since many vulnerable sections of the society do not hold much in terms of savings — whether in cash, deposits, securities or any other easily convertible asset — they are unlikely to get a lot of immediate benefit.

But they could see long-term benefit as the value of the money that they earn as wages or salary will go up. In other words, it will be a bit like everyone getting a 15% salary hike after December.

However, it may take a few months for the deflationary impact of the demonetization move to be felt and in the intervening period, the BJP may not be able to pitch the benefits of the move to voters.

A direct cash transfer — to the extent of black money cleansed from the system — would generate immediate goodwill for the government.

If the total quantum of black money destroyed is Rs 2 lakh cr, the government can — without causing much inflation — transfer around Rs 10,000 to each household in India (assuming total households = 20 cr).

However, if the move is restricted only to Jan Dhan holders, it is likely to be challenged in courts for being unfair and discriminatory. To avoid a legal challenge, government will have to use a more scientific classification such as ‘below poverty line households’ for the targeted cash disbursal.[polldaddy poll=9585049]

Separately, the government is learnt to be collecting information about all bank accounts that had been lying dormant and are suddenly seeing big cash deposits.

It is reported that many people who are unaware of the tax implications are falling into traps set by middle men who promise them 1%-2% commission for depositing money in their bank accounts.

According to Times of India, 30% of Jan Dhan account holders in one of SBI’s branches in Agra deposited amounts of up to Rs 49,000 since the demonetization drive started.