The government de-legalised the high-denomination Rs 500 and Rs 1,000 notes on November 8. Photograph: (AFP)
A look at how demonetisation has affected the Indian economy as a whole
By Saurabh Goenka
It’s been 30 days since an unscheduled address to the nation by Prime Minister Narendra Modi turned 86 per cent of India’s currency to scrap.
Since then, everyone of us has been caught up in discussions around demonetisation. From tea stalls to board rooms, from coffee tables to bank branches, everyone seems to be updated.
Fourteen lakh crore (money in circulation in now-old notes as on March 2016) has become a number which almost everyone has become familiar with. Economics rather than polity has become the favourite subject of country. But sometimes it gets difficult to remain updated with things changing so fast and where there’s so much to take in. So here is a ‘cheat sheet’ that will make you talk like an economist in front of your awestruck friends.
Enjoy the read!
1) Deposits and money supply: Around Rs. 11,500 billion ($172.5 billion) has been deposited into several banks till date, which 74.48 per cent of the Rs. 15,440 billion ($231.6 billion) that was in circulation before the government decided to flush out mid- to high-value banknotes. On the other hand, 19 billion new notes have been issued by the Reserve Bank of India -- the country's central banking institution. That amounts to around Rs 4,000 billion ($60 billion).
2) Jan Dhan Accounts: More than 2.7 million new Jan Dhan Accounts were opened between November 10 and November 30. Deposits in Jan Dhan Accounts grew by 63 per cent -- that means around Rs. 290 billion ($4.35 billion) was deposited in them between November 10 and November 30.
3) Income tax: More than 400 cases are being investigated by the Income Tax department and around 30 cases have been referred to the Central Bureau of Investigation and Enforcement Directorate (ED). Around Rs. 1.3 billion ($19.5 million) in cash and jewellery have been seized and roughly Rs 20 billion ($300 million) of unaccounted wealth has been disclosed.
4) Municipal corporations: Forty seven municipal corporations have seen an overall increase of 268 per cent in revenues till November 19 as compared to the previous month of October. Hyderabad registered the highest growth -- a whopping 2,500% -- followed by Delhi Municipal Corporation (equally staggering rise of 2,434 per cent). Rajkot and Surat, two cities in west India, were not too far behind.
5) Banking: Around 27 bank officials have been suspended and two transferred across various government-controlled banks in India due to suspected financial malfeasance. Around 50 branches of 10 banks were raided by the ED to probe alleged money laundering and other irregularities.
6) Cashless economy: There was a triplefold increase in RuPay card transactions. There were around 1 million transactions per day on such cards.
Transactions at SBI Point of Sale (PoS) swipe machines increased from 0.35 million daily to 1-1.2 million. As per data released by the RBI, use of debit cards and credit cards at PoS of four major banks stood at 205.5 million transactions, amounting to Rs. 352.4 billion ($5.29 billion) in November.
7) Toll plazas: All national toll roads were made free between November 9 and December 2. NHAI had to suffer a loss of around Rs 12 billion ($180 million).
8) Industry: The FMCG (fast moving consumer goods) industry slumped by 20-30 per cent.
The telecom industry also felt the pressure of liquidity crunch where mobile phone shipment from abroad fell down by 26 per cent in November as compared to October.
The auto industry has been hit harder. Tata Motors posted a 17 per cent decline in commercial vehicle sales in November.
For the online retail market, sales fell by 40-50 per cent in first few weeks after demonetisation. It was particularly bad because the retail sector was in the middle of their biggest quarter for sales.
The real estate sector has also experienced a slowdown, with property rates in some areas falling by as much as 50 per cent.
9) GDP: The GDP growth rate estimates are expected to slide due to demonetisation. As per a Bloomberg survey of various economists, the growth rate in the coming quarter could be around 6.5 per cent while Goldman Sachs further reduced the projection from 6.8 per cent to 6.3 per cent. However, the slowdown is not expected to continue for more than the next 2 quarters (6 months).
10) E-wallets: E-wallet or digital payment company Paytm experienced a great boost in its business post-demonetisation. Where average number of transactions before demonetisation was between 2.5 to 3 million, it rose to 7 million per day amounting to Rs 1.2 billion ($18 million). As per Paytm, more than 45 million people used Paytm and there have been 5 million new users who have used the service in first 10 days post demonetisation.
FreeCharge said it has registered a ninefold jump in merchant transactions on its platform and MobiKwik reported an overall 18-times increase in its transaction volume. Oxigen Services, which also has a digital wallet, said transactions increased to Rs 6 billion ($90 million) in November from an average of Rs 4.5 billion ($67.5 million) a month earlier. As per RBI data, in the first four days of December, the volume of transactions done daily through eight leading mobile wallets and prepaid payment instruments (PPI) was about 2.5 million, amounting to Rs 0.6 billion ($9 million).
11) Stock market: Yields of the benchmark 10-year bonds have fallen by nearly 56 basis points to 6.24 per cent on December 2 from 6.79 per cent on November 8. However, the rates have seen a jump after RBI kept the policy rates unchanged and was around 6.5% on December 8. BSE Sensex which was around 27,500 on November 8 has fallen to 26,600 post demonetisation.
Nifty also fell by around 3% from 8486.65 on November 8. Reality and FMCG index fell by 16 per cent and 4 per cent respectively while PSU Banks index rose by 2.5 per cent. Gold which has seen a jump for a couple of days post demonetisation is trading at around 6.5 per cent below the November 8 figures.
12) Farm sector: Govt has allowed farmers to purchase seeds from state-run outlets with old 500 rupee notes till Dec 15 th . In the wake of demonetisation and resulting cash crunch NABARD sanctioned Rs 210 billion ($3.15 billion) to district central cooperative banks in order to grant loans to farmers for the rabi season. However as per media reports, of the targeted Rs. 180 billion ($2.7 billion) of crop loan for rabi season, banks have disbursed only over Rs 15 billion ($0.23 billion) in October while no significant amount was released as crop loans after November 8. It is estimated that raw jute supplies to the market are tapering, with only 40-45 per cent of the stock reaching for trade. In value terms, Rs 40 billion ($0.6 billion) of raw jute is held up in the rural and secondary markets due to shortage of cash for payments.
13) Service Sector: The Nikkei India Services Business Activity index, which measures activity in the services sector, fell to 46.7 in November from 54.5 in October. New business inflows and output at services firms contracted for first time in 17 months. A reading below 50 signifies contraction from the previous month, while one above 50 indicates expansion.
14) Vegetable Prices: Where the model wholesale price of Potato in Delhi stood at Rs. 1400 ($21) per qtl on 9th Nov, it reduced to Rs. 570 ($8.55) per qtl on 8th December which is a 59.29% fall. Similarly the prices of Onion have reduced from Rs 1062 ($15.9) per qtl to Rs 812 ($12.18) per qtl depicting a 23.54% fall in prices. Although the retail prices have not changed accordingly the prices of vegetables and fruits has witnessed a fall.
15) Transporters: The All India Motor Transport Congress a representative body for 9.3 million truckers, and more than five million bus operators, tourist taxis and maxi cabs recently claimed that 70% of their members are off the road post demonetisation. It is interesting to note that this industry adds Rs 14.92 billion ($223.8 million) to the GDP of the country daily and since 80% of the transactions are in cash, around Rs 11.94 billion ($179.1 million) of cash is needed on a daily basis to sustain operations.