That the amount of money deposited in Jan-Dhan accounts of the poor has jumped by around Rs 8,000 crore in just the one week ended November 23—and by around Rs 27,000 crore since the demonetisation scheme began—makes it clear this has degenerated into a big money laundering programme after the demonetisation, along with others such as donations to temple trusts or various tax exemptions such as those for tribals in the North East. How the government is going to investigate the spurt in deposits is not clear since, on the face of things, Rs 27,000 crore over 25 crore Jan-Dhan accounts is just a little over Rs 1,000 per account. Of course, if the cash deposits are concentrated in a smaller number of accounts, the task of investigation becomes easier. Shockingly, just 55% of the accounts are seeded with Aadhaar, making it that much more difficult to know if the Jan Dhan accounts are genuine or fake and whether there is only one account per person—clearly an action point has to be to get Aadhaar-seeding and de-duplication done at the earliest. While there is always the possibility that individual account-holders have been bribed to deposit the amounts in their bank accounts, the possibility of doing that with millions of accounts is remote—more likely, those trying to launder their funds tied up with someone influential like local strongmen who have control over lots of accounts, or simply operated through bank managers who can not only deposit money into accounts but also help move it across the system—the Rs 27,000 crore refers to the cash balances in Jan-Dhan accounts which are disclosed regularly, and does not account for funds which may already have been withdrawn after depositing them.
In the case of urban areas where a few people have been caught with lakhs of rupees in new currency notes, or where some people were caught having deposited tens of crore rupees in old currency notes, the needle of suspicion is on a few bank managers. In one case, where managers of two branches of a bank are being investigated, the corporate office has said that the amounts deposited were in current accounts of existing customers who had been through the customary KYC. While it is too early in the investigation to come to conclusions, given the banking system’s centrality to the movement of money, it is critical more checks be put in place for the future. While the government insists that cash deposits of more than Rs 10 lakh in a year in a saving account be reported to the tax department, the amount seems high and, in any case, a yearly ceiling serves little purpose. Cash withdrawals above a certain value from savings accounts should also be flagged to tax officials who can then choose to investigate further. Tackling current accounts is a lot more complicated since every business has different need for cash, but consultations with industry need to be held on what prudent cash-withdrawal limits should be, after which reporting to the taxman should be mandatory. Also, it is critical India’s 45 crore-plus bank accounts be linked to its 5 crore taxpayers—given the likelihood of fake PAN cards, and the fact that India has 25 crore PAN-cardholders, it is more important to link all of them to Aadhaar numbers, a process that is far from complete. Even with prudent tax rates and lower government discretion that are vital to reducing corruption, checks on cash transactions are an integral part of controlling the black economy.