The source code and all calculations used in this analysis are available at https://github.com/DataDrivenPolicy/India.

What is black money.

There is a difference between unaccounted or untracked transaction and black money.

  • A farmer selling his crop and receiving returns in cash is not accumulating black money.
  • Your maid and innumerable other members of the unorganized sector who receive payment in cash and whose annual income is less than the taxable limit are not generating black money.
  • Even members of the business community earning crores through cash only transaction who keep proper accounts and pay the required taxes are not generating black money.

The revenue earned can be classified based on legitimacy of earning source and reporting of the earned revenue.


  • A CM ‘legitimizes’ kickback by routing it as donation to his families charitable trust.
  • Another CM ‘legitimizes’ kickback by manipulation of stocks of a family owned company and selling stocks at inflated rates.
  • An MP receives ‘legitimate’ kickback by acquiring high value property and giving it on rent with a guarantee from the renter to pay off the bank loan via rent within 5 years.

All these transaction will be reported to the tax department and proper tax will be paid.

On the other hand we have legitimate transactions turned illegitimate due to non payment of taxes. e.g.

  • Someone selling off an acre of land to finance emergency healthcare, education or marriage expenses.
  • A retired couple living off the rental income of their property not classifying it as leased property which will attract a higher property tax slab.
  • A roadside hawker plying his trade without paying the annual Rs 500/- street hawking fees.

Typically when we speak of corruption we do not speak of the individual one off corruption where the earning is legitimate but taxes are not paid, we speak of the systemic corruption where the earnings are from a criminal and anti-social activity. We speak of the Sub Inspector, the Tehesildar, the politician the business magnet who have earned their wealth through illegal means and have stored crores of it in barns, wells, attics etc.

The demonetization scheme is supposed to render this physical cash invalid and provide practical hurdles in converting them to legitimate cash.

We will analyse the amount of physical cash which is used in regular transactions vs what is stored long term in an illegal fashion.

Note: While we would have preferred fine grained quantile data for the analysis, previous efforts to obtain this data via RTI have not been successful. So we will use the dataset of “averages” reported by various agencies and available in public domain

# Read the average data stored in an Excel Sheet.
df<-read.xlsx2("commonData.xlsx",1,colClasses = c("character","numeric","numeric","character","character"))

# Convert data to a common unit.
df1<-df%>% mutate(Value=Value*multiplier)

# Put the data in a named list.

Understanding currencies in circulation.

As per data from the RBI there are 16.4 lakh crore worth of currencies in circulation. This is NOT the total black money. Most of it is the cash we use to pay for petrol, milk, vegetables etc.

What “currency in circulation” means is that if we take all the currencies printed since Independence and subtract those currencies that were withdrawn or returned as soiled/mutilated and destroyed or are in the vaults of RBI or various banks, we get a value of Rs 16.4 lakh crore.

While this number looks big, it is not.

  • If equally distributed across the 125.2 crore Indians, each Indian will receive 13099.0415 Rupees. Far, Far less than the fabled 15 lakh rupees.

Most of the readers of this article must be carrying at least half of this amount in their pockets and may have withdrawn more than this amount at the start of the month to cover household expenses.

Let us look at the basic survival needs.

NSSO declares the average monthly per capita expenses as 1905.8

If the reader is muttering that my monthly fuel/Ola/bus bill is more than this, then pause to consider and digest the fact that you and your experiences do not represent the average Indian.

emergencyTransactions<-cd$Population*cd$`per capita expenditure Annual`/12

This mythical average Indian would have withdrawn 1905.8 Rs from Bank or set aside from salary the required budget to meet his expenditure for the month of November. With demonetization announced at the start of the month he and others like him would rush to the banks to maintain cash liquidity. Effectively the collective population would have transacted approximately Rs 2.3861 lakh crores after Nov 8th.

If this number looks similar to what the government has reported as a sudden spurt in Jan Dhan accounts then it must be co-incidence. http://economictimes.indiatimes.com/news/politics-and-nation/government-looking-into-sudden-spurt-in-jan-dhan-account-deposits/articleshow/55390173.cms

Understanding the income side of the problem.

The average annual per capita income is Rs 93293 The interval at which this income is received is different for each individual, on the rural side.

  • A farmer growing sugarcane will be paid once in a year.
  • Someone else growing kharif and rabi crops may get paid twice a year.
  • Someone involved in dairy farming may be paid daily or at whatever interval decided by the milk cooperative.

Similarly on the industrial/commercial side

  • A day wage earner or a shopkeeper will be paid daily
  • A business man may be paid after product delivery which may take months.
  • A salaried employee may be paid monthly

Now only 53 % of Indians have bank accounts of which 43 % of the accounts are dormant.

activeAccount<-cd$"population with bankaccount %" * cd$"dormant account percentage"/100

So only 22.79 % of the population have an active bank account.

While those with a bank account may deposit their income in their account 77.21 % of the citizens do not have access to banking and may transact in cash only. Since we do not know the frequency of payout (daily,weekly, monthly, quarterly,half yearly, yearly) The total cash in hand can vary between 90.1835 lakh crore if every one was paid on an annual basis and 0.2471 lakh crore if the payment was on daily basis.

Some where between these two extremes, with on one hand the public holding 5.499 times more cash than what is available in the system and on the other hand the public holding cash just enough for their bare necessity lies the actual cash situation. We have people at both the two extremes, but the average lies somewhere in the middle, In the absence of any data on where the average lies, let us assume that

  • The Cash only community gets paid Rs 7774.4167 once in a month.
  • Since they do not have access to banking they store the left over cash from the previous months as follows.
    • Cash equivalent to one months income @home in the rice bin or pooja room. for emergency expenses.
    • A percentage every month in unregulated investment schemes like the local chit funds/gold schemes/money lenders etc.
    • Rest in assets like property, land, gold, motor vehicles, Gadgets etc.

So the cash in hand would be Rs 15548.8333 i.e out of Rs 16.4 lakh crore rupees circulating in the economy, 15.0306 lakh crore rupees is held as cash of 15548.8333 by 77.21% of the population without access to banking.

Out of the remaining Rs 1.3694 lakh crore some is legitimately held as monthly expenses by those with access to banking sector i.e. Rs 0.5438 lakh crore and as petty cash (minimum of 0.0065 lakh crore by business.

While there may be other reasons of holding legitimate cash (marriage, medical emergency, organizing events, house construction etc) It will be difficult to estimate this amount, also even if these cash holdings are large in value we do not expect it to be held by large enough sections of the population to create more than a percentage point difference in our calculations.

Our Estimate for unaccounted cash holding is Rs. 0.8192 lakh crore. i.e. only 4.995 % of the floating cash may be hoarded in cash format.

If we assume that all cash hoarding in of an average value of atleast 1 Crore then the number of hoarders is 81918.2282 i.e. 0.0065% of the population have a large unaccounted cash holding.

Note: the numbers used in these calculation and their source are as follows

Item Value multiplier unit source
1 Population 125.20 10000000.00
2 Per Capita Income Annual 93293.00 1.00 Rs http://economictimes.indiatimes.com/news/economy/indicators/indias-per-capita-income-rises-7-4-to-rs-93293/articleshow/52524152.cms
3 per capita expenditure Annual 22869.60 1.00 Rs http://www.indiaenvironmentportal.org.in/files/file/key%20indicators%20of%20household%20consumer%20expenditure%202011-12.pdf
4 USD Rate 67.00 1.00 Rs
5 population with bankaccount % 53.00 1.00 percentage http://indianexpress.com/article/india/india-news-india/in-india-bank-account-penetration-surges-but-43-dormant/
6 dormant account percentage 43.00 1.00 percentage
7 notes 500 1571.00 10000000.00 count
8 notes 1000 633.00 10000000.00 count
9 amount 1640000.00 10000000.00 Rs
10 amount 500/1000 1418000.00 10000000.00 Rs
11 gold Consumption 842.00 1000000.00 tonnes
12 gold rate 3080.00 1.00 rs/gram
13 annual FD Increase 290.00 1000000000.00 Rs
14 Registered Companies 15.27 100000.00 companies http://economictimes.indiatimes.com/news/economy/policy/number-of-registered-companies-climbs-to-15-27-lakh-in-january/articleshow/51026331.cms
15 Active Companies 10.76 100000.00
16 petty cash Min 6000.00 1.00 Rs http://www.quickbooks.in/r/accounting-taxes/creating-a-petty-cash-system/
17 petty cash Max 30000.00 1.00 Rs

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