How demonetisation will impact businesses, government and enterprises

On November 8, PM Narendra Modi announced the discontinuity of 500 and 1000 currency notes. According to the reports, as of March 31, 2016, the total outstanding value of demonetised currency was around 1.28 lakh crore.

According to Centre for Monitoring Indian Economy (CMIE), the cost of demonetisation till December 31, 2016,( the deadline for converting old currency notes to new ones), would be 1.28 lakh crore. This would hugely impact the businesses around the country. The impact on the enterprises would be around INR 61500 crore which is 50% of the total cost of demonetisation.

In research note, Mahesh Vyas, Managing Director and Chief Economist of CMIE said “This immediate impact would be a fall in sales. Households would reduce discretionary consumption spending during the 50-day period. The annual consumption expenditure of households is estimated at INR 31 lakh crore. Most of the discretionary spending is in cash. We expect this market to take a 50% hit during the 50-day period. This translates into a loss of INR 61,500 crore."

After the enterprises, banks will also bear the cost around $35,100 crore which includes overtime salary to bank staff, sundry expenses, etc. The cost in percentage would be 27% of the total cost for demonetization.

According to CMIE, the Government of India would have to pay an additional INR 16800 crore for printing and transporting the new currency notes to banks. Apparently, disposing the old currency notes also has a cost attached to it.