Demonetisation: How Much of Black Money is in Cash


One of the original aims of demonetisation was to eliminate “Black Money which casts a long shadow of parallel economy on our real economy.”

Since then through some deft marketing, the prime minister Narendra Modi has shifted the goal of demonetisation towards going cashless and digital payments. Nevertheless, given the fact that demonetisation of Rs 500 and Rs 1,000 notes was carried out to curb black money, it is worth asking how much black money did Indians hold in the form of cash.

Black money is essentially money which has been earned through legal as well as illegal means but on which tax has not been paid. It is also important to understand that people do not hold all their black money in the form of cash in their homes. They convert it into gold and real estate, and move it abroad to tax havens. From there it comes back through Foreign Institutional Investors(FIIs) and is invested in the stock market as well as debt market.

Hence, black money can be held in several forms. From real estate to gold to bonds to stocks. And of course, cash as well. The idea behind demonetising Rs 500 and Rs 1,000 notes was to hurt those who stored black money in the form of cash.

As the government press release accompanying the demonetisation decision pointed out: “Use of high denomination notes for storage of unaccounted wealth has been evident from cash recoveries made by law enforcement agencies from time to time. High denomination notes are known to facilitate generation of black money.”

This essentially leads to the question what portion of black money was held in the form of cash. In May 2012, the finance ministry released a White Paper on Black Money. And that had some very interesting data points. Take a look at the Table 1 below, which deals with the search and seizure operations carried out by the income tax department.

Table 1: Value of assets seized (in Rs. Crore)

Year Cash Jewellery Other assets Total Undisclosed Income
Admitted (in Rs Crore)
2006-07 187.48 99.19 77.96 3,612.89
2007-08 206.35 128.07 93.39 4,160.58
2008-09 339.86 122.18 88.19 4,613.06
2009-10 300.97 132.20 530.33 8,101.35
2010-11 440.28 184.15 150.55 10,649.16
2011-12 499.91 271.40 134.30 9,289.43

Source: White Paper on Black MoneyThe cash seized at the time the search and seizure operations were carried out by the income tax department, is a small portion of the total undisclosed income. This becomes clear from Table 2.

Table 2:

Year Cash Total Undisclosed Income
Admitted (in Rs Crore)
Proportion of cash in total
undisclosed wealth
2006-07 187.48 3,612.89 5.2%
2007-08 206.35 4,160.58 5.0%
2008-09 339.86 4,613.06 7.4%
2009-10 300.97 8,101.35 3.7%
2010-11 440.28 10,649.16 4.1%
2011-12 499.91 9,289.43 5.4%
Total 1,974.85 40,426.47 4.9%

Source: Author calculations based on White Paper on Black Money 

If we look at data for the period of six years of close to 24,000 seizure and search operations, cash formed 4.9 per cent of the undisclosed wealth. Also, the proportion varied from 3.7 per cent to 7.4 per cent over the years.

What this data tells us is that people who have black money do not store it in the form of cash. There are better ways of storing that wealth.

The next question that crops up here is that what is the total amount of black money in India. The official sources of the total amount of black money in the economy as a proportion of Indian GDP are very old. Take a look at Table 3.

Table 3:

Year Black money as a
percent of GDP
1975-1976 15 to 18
1980-1981 18 to 21
1983-1984 19 to 21

NIPFP estimate. Source: White Paper on Black Money. 

As the White Paper on Black Money published in May 2012 points out: “The last official study for estimating black money generation was conducted at the behest of the Ministry of Finance by the NIPFP [National Institute of Public Finance and Policy] in 1985.”

In 2010, the World Bank came up with estimates of the size of black money in India between 1999 and 2007. Take a look at Table 4.

Table 4:

Year Black money as a
percent of GDP
1999 23.2
2000 23.1
2001 22.8
2002 22.6
2003 22.3
2004 22.0
2005 21.7
2006 21.2
2007 20.7

Source: World Bank 

Both the White Paper on Black Money and the recent press release on demonetisation refer to these data points. But they end up flipping the figures. As the press release on demonetisation points out: “The World Bank in July, 2010 estimated the size of the shadow economy for India at 20.7% of the GDP in 1999 and rising to 23.2% in 2007.” As can be seen from Table 4, this is exactly the opposite of the World Bank figures.

I wonder how a mistake of this kind can be made in the case of something as important as demonetisation is. I guess what must have happened is that the Babu drafting the demonetisation press release must have lifted the figures straight from the White Paper on Black Money, which had them wrong in the first place.

Anyway, the nit-picking aside, what these data points clearly tell us is that the black money in India amounts to around one-fifth of the GDP. The Indian Gross Domestic Product (current prices) for 2015-2016 stood at Rs 135.76 lakh crore. Hence, the total amount of black money amounts to Rs 27.15 lakh crore, using these estimates.

Data from the search and seizure operations of the Income Tax Department tells us that black money in the form of cash forms just 4.9 per cent of the total black money. This means that the total black money in the form of cash amounts to Rs 1.33 lakh crore (4.9 per cent of Rs 27.15 lakh crore). This is the money that the government is going after through demonetisation.

The question is, is this worth all the trouble? Take a look at Table 5.

Table 5: Recovery of Black Money

Financial year Seized assets
(in Rs. Crore)
Undisclosed income
(in Rs. Crore)
2015-2016(up to November 2015) 470 6,167
2014-2015 762 10,288
2013-2014 808 10,792
2012-2013 575 10,292
2011-2012 906 14,017
2010-2011 775 10,649
2009-2010 964 8,101

Source: Annual reports, Ministry of Finance. 

Table 5 clearly shows the limited abilities of the Income Tax Department when it comes to digging up black money in the economy. Even if we ignore this and assume that this time around given the government focus, the Income Tax Department will be able to do better, the question is how much better?

The total amount of black money in the form of cash amounts to Rs 1.33 lakh crore. If the government can recover 50 per cent of this, by taxing it, it amounts to around Rs 66,000 crore. The fall in GDP growth because of demonetisation will turn out to be much greater than this. The Centre for Monitoring Indian Economy estimates that just the transaction cost of demonetisation will amount to Rs 1.28 lakh crore.

To conclude, this brings us back to the question, whether all this was worth the trouble?

The column originally appeared on Equitymaster on December 13, 2016.


About vivekkaul
Vivek Kaul is a writer who has worked at senior positions with the Daily News and Analysis(DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System , the latest book in the trilogy has just been published. The first two books in the trilogy were published in November 2013 and July 2014 respectively. Both the books were bestsellers on and Currently he works as an economic commentator and writes regular columns for He is also the India editor of The Daily Reckoning newsletter published by His writing has appeared across various other publications in India. These include The Times of India, Business Standard,Business Today, Business World, The Hindu, The Hindu Business Line, Indian Management, The Asian Age, Deccan Chronicle, Forbes India, Mutual Fund Insight, The Free Press Journal,,, Business World, Huffington Post and Wealth Insight. In the past he has also been a regular columnist for He has lectured at IIM Bangalore, IIM Indore, TA PAI Institute of Management and the Alliance University (Bangalore). He has also taught a course titled Indian Economy to the PGPMX batch of IIM Indore. His areas of interest are the intersection between politics and economics, the international financial crisis, personal finance, marketing and branding, and anything to do with cinema and music. He can be reached at

One Response to Demonetisation: How Much of Black Money is in Cash

  1. amit says:

    dear vivek sir,

    your calculation are all correct. government per se may not have collected much.however following has happened

    1. a person who had 10 crores black and has converted all to white has still incured transaction cost of 30 to 40 percent.even after this it is not sure his money will come back safely in toto

    2. Also in gurgaon average real estate prices in HUDA sectors have fallen from 85000 per yard to 65000 per yard that is smaller plots.for 500 sy yd plots rate has come down to 45000. You can check on 99 acres or magic bricks.

    3. A person having 30 crores of property before demonetisation cannot sell it for 20 crores also now.

    4. common people like me are observing this among friends and relatives and enjoying this fact that at least something has happened to such people who had accumulated wealth by such means.

    5. we will have to do second order thinking to know the effects of demonetisation.

    6.Plus more measures are likely to be followed.

    7.One more fact that many poor dont want direct credit of salaries into account as many may lose BPL status. this whole thing is a very complex and cannot be broken into a simple math effect. Growth can suffer but it is important to convey that honesty pays and psyche of this country will change now.

    8 truck drivers telling the policemen impound the truck i cannot pay you bribe in cash.

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