Cost of demonetization

I had earlier asserted that the Modi’s demonetization was nothing but an elaborate eyewash. This follow on post is to highlight the cost of the scheme:
Cost of currency printing: Indian currency is printed at two presses Bharatiya Reserve Bank Note Mudran Pvt Ltd (BRBNMPL) and Security Printing and Minting Corporation of India Ltd (SPMCIL). As per Week magazine http://www.theweek.in/news/biz-tech/what-is-cost-printing-our-currency-notes.html the cost at SPMCIL was 3.090 and for 1000 rupee was 3.540
As on 30th Dec 2016, there were 16.5 billion 500/- notes https://en.wikipedia.org/wiki/Indian_500-rupee_note#Discontinuation and 7.03 billion 1000/- note (total value of 500 and 1000 rupee note being 15.28 lakh crore) So the printing cost of these currency notes that are being scrapped is roughly 7,588 crore (5,095 crore for 500/- rupee note alone).
Assuming that when these old currency is replaced by fresh currency, only half of the notes are in 500/- (8.25 billion) and rest are in 2,000/- and due to express printing & added security measures the cost now is 4/- per note. Then the replacement cost is an additional 5,531 crore (total cost is now 13,119 crore)
Distribution & logistics costs: As per RBI ATM machine cost of operation is subsidized at 10/- and the manual teller cost are manifold higher. But taking a conservative value of 10/- and assuming that every Indian makes at least one extra trip for money exchange (bank, atm or special counter) during this 50 day period of chaos, we are looking at a cost of Rs 12,520,000,000 (1,252 crore). Mind you this does not include the cost of Indian AirForce jets which have been redeployed by the government to distribute cash at a war footing.
Economic cost: With one stroke of pen, all the unemployment has virtually been wiped off for 50 days. Agents are paying anybody with an I-card, a couple of hundred bucks for each trip for the money exchange. While one might call it wasteful/futile labor but this is not the economic cost. The acute shortage of currency notes and hoarding mentality has resulted in a standstill in economy. The worst hit are the service industry which are prone to discretionary spending and are not covered by the exemptions given to petrol bunks, hospitals etc. Most Indians do not have a bank account and even those who have realize that cheques are not considered a valid form of payment in India and usage of plastic cards (beyond atm withdrawal is limited)
Human cost: 33 people have died standing in ATM as per Indian Express. Not to mention the countless productive hours lost because of able bodied citizens standing for hours a stretch for the bank queues.
VIDS (voluntary income disclosure scheme) resulted in 9,760 crore of income tax collection. This denomitization has already resulted in 14,370crore of expenses (without counting for indirect costs) and government is yet to publish any result any concrete statistics on the amount of black money it has undisclosed or how much penalty was imposed. I hope bringing the country to its knees for 50 continuous days was worth it.

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2 thoughts on “Cost of demonetization

  1. The biggest cost was borne by lay public in terms of loss of productivity and hardship that is unmeasurable. The banking system (publicly listed entities all) which was taken for granted was merely a beast of burden paralyzed with cashier work instead of tackling NPAs and salvaging their finances. Even today, four months later, many ATMs are running dry.
    What was the govt effort in all this? Which govt department had to slog it out?
    A great govt is one that gets brainwaves and neatly transfers all burden of implementation and compliance on hapless third parties by edict. At the same time ensuring everyone actually believes they are doing their bit towards nation building, without being to say one word in protest.

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    • I completely agree. and its been 80 days since the end of demonetisation era and we are still to see even any shred of evidence pointing towards any benefit out of it.

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