1. Demonetisation: Currency recall could cost India a massive Rs 1.28 lakh crore

Demonetisation: Currency recall could cost India a massive Rs 1.28 lakh crore

The transaction cost of the government's demonetisation exercise is projected to be about Rs 1.28 lakh crore during the 50-day window till December 30, 2016, according to CMIE estimates.

By: | Updated: November 30, 2016 10:59 AM
12% share of households, that stand in queues to exchange theor old currency notes with new ones, in the total demonetisation transaction cost. They stand to lose Rs 15,000 crore. 12% share of households, that stand in queues to exchange theor old currency notes with new ones, in the total demonetisation transaction cost. They stand to lose Rs 15,000 crore.

The transaction cost of the government’s demonetisation exercise is projected to be about Rs 1.28 lakh crore during the 50-day window till December 30, 2016, according to Centre for Monitoring Indian Economy (CMIE) estimates. According to Mahesh Vyas, the managing director and chief economist of CMIE, the exercise can only be considered worth if the government is able to unearth unaccounted cash worth at least the transaction cost. “If the government succeeds in unearthing even Rs.4 trillion unaccounted cash, then the transaction cost of this exercise would be about 26 per cent. It would be over 43 per cent if the unearthed cash is Rs.3 trillion,” Vyas said in his research note.

Though welcomed by many across the country, the government’s decision to demonetise higher currencies has left many in the lurch and utter state of confusion. The study also warned the impact of the rudimentary step could impact the economy over a longer period.

The cost of Demonetisation:

12% share of households, that stand in queues to exchange theor old currency notes with new ones, in the total demonetisation transaction cost. They stand to lose Rs 15,000 crore.

The government and the RBI are estimated to bear a cost of Rs 16,800 crore. This is largely because of printing of new currency and transportation of new currency to bank branches, ATMs and post offices.

Enterprises stand to pay the biggest price for this transaction, by way of loss of business. According to estimates, companies will witness a direct impact on business in terms of the drop in discretionary spending by households. This alone adds up to more than half of trillion rupees during the 50-day period till the end of December. Enterprise stands to lose Rs 61,500 crore or 48% of the total transaction cost of this exercise of demonetisation.

All estimates are limited to the 50-day window. However, the impact of low liquidity, broken supply chains and loss of confidence in consumers is likely to impact the economy over a longer period. Therefore, the transaction cost of this exercise is likely to be more than the estimated amount.

  1. sanjaykumar
    Nov 30, 2016 at 5:50 am
    Looks like Author lost huge amount in this step..meaningless to count man hours spent in Bank queues..as all are not productive all 24 hours a day..when you go watch movie or watch televiosn..you spend time there..why can't you analyze the money loss due to people watching TV,Movie and also reading news papers etc..etc...
    Reply
    1. Bikram Agarwal
      Nov 30, 2016 at 5:32 am
      Currency recall could cost India a mive Rs 1.28 lakh crore
      Reply
      1. D
        Dhina
        Nov 30, 2016 at 6:13 am
        when ppl watch movie, it is not free, it is again some business.
        Reply
        1. Blu Ehtesham
          Dec 3, 2016 at 2:56 am
          How our economy is gonna crash, this report speaks...#PoorModi
          Reply
          1. C
            clarify
            Nov 30, 2016 at 6:31 am
            => after demonetization, the crime rate has steeply decreased. Has the writer considered the cost savings here.=> Better standard of living. in terms of lesser corruption, more transperancy, less inflation .=> no goons are fed with black money to create problems in the society.
            Reply
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              mahesh harisinghani
              Nov 30, 2016 at 7:59 am
              From this article it appears that there were no lines at banks before demonetisation. How much man days are lost in traffic jams in cities everyday. What is the cost of bandh strike called by political parties including replacement cost of damaged property. How much man hours Delhi police is spending escorting various dharnas at Jantar Mantar. Demonetisation is one time excercise trying to clean the system which needs major surgery. The only mistake the government has gone for major surgery whithout administering anesthesia to patient.
              Reply
              1. Ghoda Murshatpur
                Nov 30, 2016 at 6:30 am
                People enjo this exercise. Many were simply happy because they were trusted & offered cash to deposit in their accounts !
                Reply
                1. Sagar Naik
                  Dec 1, 2016 at 3:07 pm
                  15 Lakh Crores in publicEven if the move recovers just 7 lakh croresLoss of 1.28 lakhs crores is nothing
                  Reply
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                    prakash
                    Dec 15, 2016 at 6:24 am
                    This is a very childish and naive thinking.1Curruption will never stop as currupt Govt Officers are not adverse to accepting new notes - Do you think officres will now say sorry I can not accept new notes please collect your doent I have signed it, what are you talking about like a KG kid ?2. Blck money is what when no I Tax is paid OK ? Now only 1 % people pay Tax Do you think only 1 % have income above 3 L ? Almost 35 - 50 % earning money or doing business are not paying any I Tax.And so called black money is with almost 50 % of potion ( including some beggars ) .That is why almost all money in circulation 14.5 L crore will come back with no black money revealed 3.People who had ded money ( blck or white )have changed to nre notes,in fact many people are ding money unnecessarily afraid that money may vanish from Bank who knows,4. Political parties including BJP do not disclose source of funding almost 50 %,this could be blck money and Congree or BJP dont want to disclode source so clean your house before telling others to clean theirs5.Please understand politicians are clever to protect their interst and make people emotional and sacrifice ( they get 5 star meals at 15 Rs in parliament), have they surrendered this subsidy big No NoAll in all nothing will change and if Govt tries hard emergency like situation may arise ,with ITax/police raids on all
                    Reply
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                      Rangaraj
                      Nov 30, 2016 at 6:21 am
                      Modi is concerned only about political gain and not economic and other losses for India. Some gullible people are carried away saying it is a bold step against black money. It is neither a bold step nor is it against black money. Anybody, even a clerk can take a decision to demonetise some notes without worrying about consequences. Again, black money continues to flourish. They have taken new route of Rs 2,000 and 500 notes, Jan Dhan accounts, gold and real estate.
                      Reply
                      1. R
                        Rangaraj
                        Nov 30, 2016 at 8:21 am
                        What govt is doing is simply replacing old 500 Rs note with new Rs 500 notes, and replacing old Rs 1,000 with new Rs 2,000 notes. Black money will continue using these notes. The source of black money has not been tackled or put down. The source remains as strong as ever. Excessive taxation is at the root of the problem. Two months ago, Ravishankar Prasad refused to discuss lowering or removal of transaction tax, various taxes even to buy rly tickts or pay premium to LIC etc online. Those steps and others to promote online payments etc should have been promoted if govt was serious about digital or cashless system. On the other hand, we were penalised fr going online. Now, for this month alone, they say transaction tax will be waived. Why can't it be waived altogether? These steps should have been done months ago
                        Reply
                        1. R
                          Ranjith Kumar
                          Nov 30, 2016 at 6:33 am
                          Have you ever heard " The cost of getting my Father cured for cancer was whooping 15 Lakhs". Mr. Vyas, is cure more important or cost? I am a layman as far as economics is concerned, but I see the intent. Has anybody examined and calculated 'cost' of fake currency. A lot more to say..., but simply would say, honest people are the ones you should ask and ess.
                          Reply
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                            RamMadhav
                            Nov 30, 2016 at 5:56 am
                            desease is better than medicine
                            Reply
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                              Dr. C
                              Nov 30, 2016 at 6:18 am
                              1. Cost of less expenditure on controlling extremism.2. No loss in business- may be temporary.3. No cast of flushing black money. 4. Collection of all black money.Please calculate these all also.
                              Reply
                              1. X
                                xyz
                                Nov 30, 2016 at 8:55 am
                                This loss is going to be over four years recession.
                                Reply
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