SOIL RATES Naman.docx - SOIL RATES It is the rate at which...

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SOIL RATES It is the rate at which notes are considered to be too damaged to use and have been returned to the central bank. RBI data show that in India low denomination notes have a soil rate of 33% per year. In contrast, the soil rate for the Rs.500 note is 22%, and the Rs 1000 is 11%. Using relative soil rates for the US $ 50 and $20 notes and applying them to comparable Indian high denomination notes, yields an estimate of the amount not used for transaction and hence potentially black money, of about Rs. 3 lakh crores. This is substantial, as it represents about 2% of GDP. Is low soil rate of high denomination notes an indication towards corruption and black money. In principle, if a rupee denomination note and foreign denomination note fulfil a similar transaction function then their soil rates should be similar (all else equal). If the Indian soil rat is instead lower, this suggests that a fraction of notes is not being used for transaction but rather for storing black money.
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