Demonatisation Estimated To Cost Rs 1.28 Lakh Crore To Indian Economy: Centre For Monitoring Indian Economy

The Logical Indian

November 28th, 2016

Cash Based Economy

Source: business-standard | Image Courtesy: qzprod

Cash Based Economy

The cash-based economy is unable to conduct  transactions due to a cash crunch. Business and financial obligations are not being met, and people are failing to liquidate stock and receivables into cash. The Centre for Monitoring Indian Economy (CMIE) has estimated that the cost of demonetization to the economy has been Rs 1.28 lakh crore. This price does not include factors like indirect costs, cost derived from supplying chain, etc.

Rs 61,500 crore will be borne by the enterprise sector as the highest direct cost and it covers all the goods and services producing business enterprises.  Everyone involved in the supply chain be it farmers, input suppliers, transporters, retailers, stockists, manufacturers, retailers, malls and other retail outlets are covered under the goods and services providing to a business enterprise.

The impact of a broken supply chain plays out over several quarters. It also affects the capacity utilisation of manufacturing companies and jobs, but the immediate consequences fall upon sales because of a decrease in liquidity.

The CMIE has also estimated that the cost of people standing in long queues, losing wages for that period is Rs 15,000 crore. This includes the expenditure on photocopies of identity proofs required for the transactions.

The project cost to the government and the Reserve Bank of India is around Rs 16,800 crore. It includes four types of cost. The printing cost of new currency notes, transportation cost to all bank branches, paying the highway toll agencies who have been asked to keep their stretches toll-free, and lastly the human resource and overheads to manage this operation.

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