Demonetization to Backfire on Modi?

Indications are on that Modi’s Demonetization may backfire on the government not achieving the target of curbing the Black Money. The government has estimated that the demonetization might flush out about Rs 3 lakh crore in black money that may never come back. But then things are looking bleak.

[m9ad]

According to the data of the government deposits in two high denomination notes by Saturday evening had totaled Rs 9.85 lakh crore and more cash is expected to flow in before December 30 when the window closes, this figure might grow big. There is a total of 14.6 Lakh Crore of the 500 and 1000 Notes in Circulation.

With government hoping that at least Three Lakh not coming back, the prospect which would have reduced the RBI‘s liability and it could have passed on the money thus saved as a dividend to the government. Poor and Middle Class who have extended all the support to the center despite several troubles, hoping that the government will pass on the benefit through Income Tax Reduction.

But then if all the 14.6 Lakh Crore is deposited back, the Demonetization will be flop given that the government will not have any saved money and it can not be passed on to the people. Moreover, there is this burden of printing the new notes, their transportation, and other logistics. Also, the revenues are being hit badly due to Demonetization which will impact the inflation and GDP. Media and Opposition will be hounding Modi for sure in such case.