Here’s The Price Indians Paid For Demonetisation. Was it worth it?



More than nine months after the Narendra Modi government’s massive demonetisation exercise, aimed at cleaning up black money, the Reserve Bank of India estimated that only 1.4 percent of the demonetised ₹1,000 notes did not make its way back to the banks. That’s only ₹8.9 crore.

But is that number worth the cost of demonetisation?

The cost of printing of currency notes in 2016-17 was double that of the previous year — according to RBI’s annual report it jumped from ₹3,421 crore to ₹7,965 crore — thanks to the new notes printed post-demonetisation.

 And the ₹8.9 crore figure might dip further — RBI reportedly still hasn’t counted the currency returned to district central cooperative banks and those returned in Nepal.
An Indian bank employee checks stacks of new 2000 rupee notes in Ahmedabad

Meanwhile, The Times of India reported that the reserve bank’s interest income this year dropped “10% to ₹66,051 crore from ₹73,543 crore in the previous year.”

“The total expenditure of the RBI also increased by 107.84 per cent from ₹14,990 crore in 2015-16 to ₹31,155 crore in 2016-17,” reportedThe Telegraph. According to the report, the central banking institution’s “net income from domestic sources decreased by 17.11 per cent from ₹52,157 crore in 2015-16 to ₹43,232 crore in 2016-17.”

Earlier this month, the RBI could transfer only half of it’s surplus to the government compared to earlier —₹30,659 crore instead of ₹65,876 crore — which is the lowest dividend since 2011-12. The government had reportedly budgeted for ₹58,000 crore. While this can’t be solely blamed on demonetisation, it is a major contributing factor.

Meanwhile the Centre for Monitoring Indian Economy estimated the transaction cost of demonetisation to be ₹1.28 lakh crore. According to the private business information company, the biggest chunk of this would hit business enterprises, followed by banks, the government and RBI, and households.  A breakup of this estimate can be accessed here.



Economists had sounded the alarm on some of these consequences, calling its effect on the Indian economy “significant if not catastrophic”.

This is not counting the huge number of man-hours spent in exchanging the old notes for new, during which reportedly as many as a 100 people died standing in long queues and in other related ways. Citizens scrambled to get hold of the new currency notes which were short in supply following the demonetisation announcement in November last year, leading to chaos.

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