Skip to main content

Demonetization "cost" would reach Rs 40,000 crore, loss to working days 300 million, plus GDP loss: CARE

By Our Representative
One of India’s topmost rating agencies, Credit Analysis and Research (CARE) Ltd, has predicted that the total cost of the Narendra Modi government move to demonetize Rs 500 and 1000 notes would go up to Rs 40,000 crore, wondering whether the pain it is causing to the common people worth it.
Earlier, Union finance minister P Chidambaram in a statement had predicted that the loss to the economy pay go up to Rs 20,000 crore – half of what Sabnavis now says the loss India would suffer because of demonetization. Chidambaram,,taking a line similar to the top rating agency, had wondered if the risk was worth taking cost-wise.
Calculating the huge cost, Madan Sabnavis, chief economist of India’s top rating agency, says in an in-depth analysis, an imputation into the cost involved in the exercise suggests that there are around 290 million households, of which two-thirds would be affected fully, “assuming the balance are very poor.”
According to his calculation, “Each household would spend at least 12 hours standing in queues for exchanging, depositing and withdrawing money in the period up to December end. It could be higher too.”
Pointing out that would be “around 300 million working days assuming that a working day is 8 hours and one spends one-and-half days of time”, Sabnavis says, “At the most basic level the per capita income of Rs 8,000 per month for the country implies a daily salary of Rs 360, which work s to Rs 540 for one-and-half days which comes to Rs 540x30 or around Rs 16,200 crore.”
“To this”, says the rating agency’s chief economist, “should be added the cost for banks where the pure salary bill is around Rs 400 crore a day (annual wage bill of Rs 1.2 lakh crore, which implies Rs 10,000 crore a month, or Rs 416 crore a day, assuming 24 working days), where a multiple of one-and-half days can be added for other expenses that go with operations.”
Sabnavis further says, “Assuming again that altogether banks will be working for at least 10 additional days the value will be between Rs 4,000 crore and Rs 6,000 crore”, adding, “Hence, the total imputed cost of operations would be a minimum of Rs 20,000-22,000 crore at the minimum.”
On the basis of all this, he calculates, “Add to this the cost of realigning ATMs, transportation of cash, security, besides the printing of new notes and destruction of old mites, the overall cost could run to anywhere between Rs 30,000 crore and Rs 40,000 crore.”
Pointing out that “this excludes the loss of Gross Domestic Product (GDP) which cannot be made up like in services”, Sabnavis insists, one should remember, “Consumer goods would always see a revival once things settle down. Therefore, unearthing black money through demonetization can be an expensive exercise if birth direct and direct costs are included.”
Kaushik Basu
Sabnavis’ barbs come amidst increasing number of experts doubting if the move would help the Indian economy. Kaushik Basu, former World Bank chief economist, believes the potential economic damage of such “shock therapy” has been underestimated, as India could see significant quantities of both black and white money taken out of circulation.
Calling it bad economics, Basu says, it’s “a very risky correction of money supply”, adding, “Ordinary salaried people, retirees and small farmers who store their legitimate incomes in cash for future durable and rainy-day purchases, will not be able to change all their money for fear of harassment and not being able to explain how they got it.”
“This can be very disruptive, increasing the costs of small business and trade and causing a drop in aggregate demand in the economy, thereby slowing growth”, he says.

Comments

TRENDING

A Hindu alternative to Valentine's Day? 'Shiv-Parvati was first love marriage in Universe'

By Rajiv Shah*   The other day, I was searching on Google a quote on Maha Shivratri which I wanted to send to someone, a confirmed Shiv Bhakt, quite close to me -- with an underlying message to act positively instead of being negative. On top of the search, I chanced upon an article in, imagine!, a Nashik Corporation site which offered me something very unusual. 

'Anti-poor stand': Even British wouldn't reduce Railways' sleeper and general coaches

By Anandi Pandey, Sandeep Pandey*  Probably even the British, who introduced railways in India, would not have done what the Bhartiya Janata Party government is doing. The number of Sleeper and General class coaches in various trains are surreptitiously and ominously disappearing accompanied by a simultaneous increase in Air Conditioned coaches. In the characteristic style of BJP government there was no discussion or debate on this move by the Indian Railways either in the Parliament or outside of it. 

Swami Vivekananda's views on caste and sexuality were 'painfully' regressive

By Bhaskar Sur* Swami Vivekananda now belongs more to the modern Hindu mythology than reality. It makes a daunting job to discover the real human being who knew unemployment, humiliation of losing a teaching job for 'incompetence', longed in vain for the bliss of a happy conjugal life only to suffer the consequent frustration.

Why convert growing badminton popularity into an 'inclusive sports opportunity'

By Sudhansu R Das  Over the years badminton has become the second most popular game in the world after soccer.  Today, nearly 220 million people across the world play badminton.  The game has become very popular in urban India after India won medals in various international badminton tournaments.  One will come across a badminton court in every one kilometer radius of Hyderabad.  

Faith leaders agree: All religious places should display ‘anti-child marriage’ messages

By Jitendra Parmar*  As many as 17 faith leaders, together for an interfaith dialogue on child marriage in New Delhi, unanimously have agreed that no faith allows or endorses child marriage. The faith leaders advocated that all religious places should display information on child marriage.

How embracing diversity enriched my life, brought profound sense of joy

By Mike Ghouse*  If you can shed the bias towards others, you'll love the connections with every human that God or his systems have created. This gives a sense of freedom and brings meaning and joy to life. Embracing and respecting how people dress, eat, and practice their beliefs becomes an enriching experience.

'28% rise in sedition cases': Top global NGO alliance rates India's civil space 'repressed'

By Rajiv Shah Rating India's civic space as repressed , Civicus, a global civil society alliance, in its new report submitted to the UN Human Rights Committee (UNHRC) on the state of civic space in the country has said that the use of sedition law against the Modi government’s critics continues. "Under the government of Prime Minister Narendra Modi, sedition cases have increased by 28 per cent with over 500 cases against more than 7,000 people", it says.

Ayurveda, Sidda, and knowledge: Three-day workshop begins in Pala town

By Rosamma Thomas*  Pala town in Kottayam district of Kerala is about 25 km from the district headquarters. St Thomas College in Pala is currently hosting a three-day workshop on knowledge systems, and gathered together are philosophers, sociologists, medical practitioners in homeopathy and Ayurveda, one of them from Nepal, and a few guests from Europe. The discussions on the first day focused on knowledge systems, power structures, and epistemic diversity. French researcher Jacquiline Descarpentries, who represents a unique cooperative of researchers, some of whom have no formal institutional affiliation, laid the ground, addressing the audience over the Internet.

Post-poll mob lynching spree, bulldozer justice: NAPM seeks united resistance

Counterview Desk  Condemning what it calls "the horrific spree of mob lynchings across the country after the Lok Sabha election results", India's premier civil society network, National Alliance of People’s Movements (NAPM), has called for "united resistance" against "hateful communal politics, mob lynching of religious minorities and caste-based oppression".