Demonetisation to cost Rs 1.28 lakh crore till Dec 30: CMIE

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.

By: Express Web Desk | New Delhi | Updated: November 25, 2016 5:41 pm
 demonetisation, transaction cost, demonetisation transaction cost, CMIS-demonetisation, CMIS-Indian economy, Indian economics, India news Photo for representational purpose.

The transaction cost of the demonetisation exercise during the 50-day window till December 30 would be a staggering Rs 1.28 trillion (Rs 1.28 lakh crore), according to a study by the Centre for Monitoring Indian Economy.

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.

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Households, according to Vyas, will bear 12 per cent of the entire cost of demonetisation, largely in loss of wages, during the 50-day period while banks will suffer “overheads and operational costs in terms of recalibrating ATMs”. As per his estimates, banks would bear a cost of Rs 351 billion during this stipulated period.

Enterprise sector stands to suffer the most out of this exercise, which is aimed at rooting out the menace of black money, as it is projected to lose Rs 615 billion or 48 per cent of the total transaction cost during this period.

 demonetisation, transaction cost, demonetisation transaction cost, CMIS-demonetisation, CMIS-Indian economy, Indian economics, India news Enterprise sector stands to suffer the most out of this exercise, as it is projected to lose Rs 615 billion or 48 per cent of the total transaction cost during this period. (Source: CMIE)

The study also paints a grim picture for the government and the Reserve Bank of India. “The government and RBI are estimated to bear a cost of Rs.168 billion. This is largely because of printing of new currency and transportation of new currency to bank branches, ATMs and post offices,” he said.

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.

“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 more than the Rs.1.28 trillion estimated here,” he concluded.