Once notes are cancelled, Reserve Bank can pay the amount to the government as dividend
The government may issue an ordinance to provide clear legal support for extinguishing the demonetised Rs 1,000 and Rs 500 notes that are not returned by December 30. The government wants to amend the Reserve Bank of India Act to this effect and ordinance route may be opted for as Parliament would not be in session immediately after the last day of surrender.The ongoing winter session of Parliament -disrupted by protests as it has been -ends December 16 and the budget session will start only late January .
An ordinance will pave the way for cancelling the said currency once the amount of money returned becomes clear on December 31.“We could look at it (an ordinance),“ said a government official. Only when the unreturned currency is cancelled can it be made available to the government, possibly via a dividend paid by RBI.Once this is done, the government could consider the amount so recovered for its budget that's scheduled to be presented on February 1.
According to initial estimates, a significant chunk of the Rs.15 lakh crore in high-denomination currency was not expected to come back into the system. But that esti mate has been steadily scaled back with some pegging the returned amount at as much as Rs.10 lakh crore. This hasn't been independently verified.
In any case, the unreturned amount is likely to be less than early estimates as the government has allowed a settlement option at 50% tax for unaccounted income. Some estimate that amount of unreturned notes will be Rs. 3-4 lakh crore.
As of now, notes can only be deposited until December 30 but it's not clear what the deadline for exchange will be at RBI's offices. All notes carry RBI's promise to pay the bearer the amount of the value of the note, which has led to confusion over whether this pledge can be nullified. Finance Minister Arun Jaitley had said last month that some legal measures may be needed.
“So far formally the high-denominational currency has ceased to be a legal tender. Some more legal steps will be required later on if one is to extinguish that,“ he had said. A notification to end the central bank's liability in this regard may not suffice and make it vulnerable to legal challenges.
Former RBI Governor D Subbarao wrote recently that the government may need to amend the law to establish its claim on the money not returned.
The Economic Times New Delhi,07th December 2016
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