Response to the Press release by the Ministry of Finance

On 18^th 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. 

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

On 8^th 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 8^th 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. 

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.