Demonetisation to cost Rs.168 billion to RBI and Government

by Mahesh Vyas

There are at least four kinds of costs the government and the RBI have to bear in the demonetisation exercise. First, they have to print new currency notes; second, they would have to bear the cost of transporting the new currency notes to all bank branches, post offices and ATMs; third the government will have to pay highway toll agencies who have been asked to make the highways toll-free; and fourth they have their own costs in terms of human resources and corresponding overheads to manage this mammoth operation.

According to an article in the Mint newspaper on November 14, the cost of demonetising the old currency notes (writing off the notes printed earlier) and printing new ones could be about Rs.109 billion. To the best of our understanding this number has not been challenged since it was published. We therefore accept it as a reasonably reliable estimate.

We estimate the cost of transporting this cash to the various bank branches, post offices and ATMs as Rs.16 billion over the 50-day period. This cost consists of airlifting the cash to all 123 airports in the country in six sorties and then transporting them by road to the bank branches, post offices and ATMs. We have not taken into consideration a recent announcement that even petrol pumps would be used as cash exchange points.

Highway tolls became a major bottleneck immediately after the announcement of the demonetisation scheme. In response, the government announced that national highways should waive toll fees and the government would compensate them for the loss. This waiver was initially for a limited period but as the liquidity crunch has continued, the government kept extending the waiver. We believe that this waiver would continue till December 30 and will be applicable to all the 385 national highways.

News reports mention that the highway toll agencies are losing Rs.800-900 million every day on the national highways. For our calculations we take a cost of Rs.800 million a day. This implies a total cost Rs.40 billion. There have been some reports of state governments waiving state highway tolls as well but, we have not taken these into consideration.

Like bank employees are fully engaged in the demonetisation exercise a substantial contingent of the employees at RBI, Ministry of Finance, PMO, etc are engaged in managing the same. The government has been very quick to react to ground realities. It has made frequent changes to the rules of the game of exchange. At times its reactions have caused greater hardships, but the point here is that the government is fully engaged in the operations.

We have not been able to make any estimate of the direct monetary cost of this intense engagement of the government. We have therefore assumed that its costs would be one per cent of the cost borne by banks. This works out to less than Rs.3.4 billion. Implicitly, we do not consider the cost the government may bear in sending notices and following up on these after December 30, 2016. We also do not take into consideration that large volume of litigation that could follow such notices.

Given the above limitations of the exercise the cost to be borne by the government and RBI works out to be Rs.168 billion.

Unemployment Rate (30-DAY MVG. AVG.)
Per cent
7.0 -0.7
Consumer Sentiments Index
Base September-December 2015
59.9 +1.2
Consumer Expectations Index
Base September-December 2015
61.2 +1.0
Current Economic Conditions Index
Base September-December 2015
57.9 +1.6
Quarterly CapEx Aggregates
(Rs.trillion) Mar 21 Jun 21 Sep 21 Dec 21
New projects 2.36 2.74 2.25 2.51
Completed projects 1.17 0.74 1.18 1.53
Stalled projects 0.28 0.33 0.03 0.03
Revived projects 0.23 0.12 0.28 0.39
Implementation stalled projects 0.34 0.38 0.25 0.65
Updated on: 19 Jan 2022 8:28PM
Quarterly Financials of Listed Companies
(% change) Mar 21 Jun 21 Sep 21 Dec 21
All listed Companies
 Income 15.1 39.2 27.9 17.0
 Expenses 7.4 38.6 27.3 18.0
 Net profit 337.8 142.5 52.7 12.8
 PAT margin (%) 8.8 9.0 9.6 19.4
 Count of Cos. 4,401 4,495 4,546 145
Non-financial Companies
 Income 17.8 56.1 36.1 18.9
 Expenses 10.7 57.1 36.6 22.3
 Net profit 222.4 199.3 59.5 4.9
 PAT margin (%) 9.0 8.5 8.8 17.7
 Net fixed assets 2.3 4.9
 Current assets 4.3 11.0
 Current liabilities 1.2 0.9
 Borrowings -4.5 12.2
 Reserves & surplus 11.7 12.4
 Count of Cos. 3,247 3,301 3,304 104
Numbers are net of P&E
Updated on: 19 Jan 2022 8:28PM
Annual Financials of All Companies
(% change) FY19 FY20 FY21
All Companies
 Income 13.4 0.6 -1.5
 Expenses 13.8 0.4 -4.1
 Net profit 12.7 -6.9 62.0
 PAT margin (%) 2.0 2.1 5.7
 Assets 9.9 8.8 10.7
 Net worth 8.2 4.5 13.3
 RONW (%) 3.6 3.5 8.2
 Count of Cos. 32,530 31,471 11,634
Non-financial Companies
 Income 14.2 -1.2 -3.0
 Expenses 14.3 -0.9 -5.3
 Net profit 22.1 -21.1 49.3
 PAT margin (%) 2.8 2.3 5.3
 Net fixed assets 6.0 11.2 1.5
 Net worth 7.8 2.2 11.0
 RONW (%) 6.3 4.9 9.1
 Debt / Equity (times) 1.0 1.1 0.8
 Interest cover (times) 2.2 1.9 2.8
 Net working capital cycle (days) 74 81 80
 Count of Cos. 25,943 25,015 8,657
Numbers are net of P&E
Updated on: 18 Jan 2022 2:48PM