DEMONETIZATION TRUTH Vs HYPE

Many economists and Nobel laureates have propounded their view on the issue, many a
times more of a rhetoric than pure reasoning. Reading all those comments, speeches by
someone renowned for his qualification in economics and skills in administration, such as Dr
Manmohan Sigh, calling the exercise as an organized loot and Legalized Plunder, make me
laugh and wonder whether an economist of his status would stoop down such a level of
political jingoism far away from the facts.
I am reminded of a story where a group of blind men attempted to describe an elephant!

Everyone is bound to argue that he is right, but the truth is not right in entirety the picture is
different from perception when you view it in totality. Invariably many have been eager to
vent out their personal opinions, often not supported by research, past data, facts and figures.

T. Sridhar, Nov 2016

I am not an economist and not affiliated to any political party. Instead of explaining the logics,
I shall start addressing the claims by pundits of the adverse effects and unpreparedness etc.,
and disprove them one by one with facts and figures.

MYTH 1- INDIAN POOR ARE THE MOST AFFECTED:

1. India's per capital income rose by 7.4 per cent to Rs 93,293 in 2015-16, compared to
Rs 86,879 in the preceding fiscal, government data showed today.

2. As of Nov 2016, India is the second-most unequal country in the world. The richest
1% of Indians own 58.4% of wealth. The richest 10 % of the Indians own 80.7 % of
the wealth. This trend is going in the upward direction every year, which means the
rich is getting richer and the poor is getting poorer

Understanding the above two statistical numbers, we can infer the so called poor people of
India earn far less than the average of Rs 93,293/- or a monthly income of less than Rs 7,750.
Let us understand that it is not their savings but income. After providing for their living how
much money would be left with in their hands at any point of time and that too in Rs 500
and Rs 1,000 denominations? Hence the poor are stranded with old currency in their hands

http://economictimes.indiatimes.com/news/economy/indicators/indias-per-capita-income-rises-7-4-to-rs93293/articleshow/52524152.cms
2
https://en.wikipedia.org/wiki/Income_inequality_in_India

T. Sridhar, Nov 2016

could well be unfounded. We all know that the poor of India do not use cash as store of value;
they convert it into livestock or gold. The so called poor might have had a couple of notes
which they could have exchanged in the window of time provided for exchange.
The immediate question is the big queues at the banks and ATMs. The point to be noted here
is that the currency exchange queue surprisingly vanished once the indelible ink came into
picture. The correct fact is that the exchange window was exploited by the black money
hoarders using the so called poor as mules. Our gullible population was very happy to do the
service for a small crumb that might have been thrown at them.

MYTH -2 ADVERSELY AFFECTS THE GDP AND IS DISRUPTIVE

Currency in circulation as on 8-11-163 has been furnished in the table below. I have used the
numbers presented at the parliament on the high value currencies as at 8 th November and
correlated with the published figures of RBI as at 11-11-16 (Reserve money components).
Denomination
1,000
500

Number of notes

Value

% of total

6,858,000,000

6,858,000,000,000

38.36%

17,165,000,000

8,582,500,000,000

48.00%

2,436,740,000,000

13.64%

17,877,240,000,000

100%

Other denominations
Total

Hence money taken out of system by demonetizing the old 500 and 1000 notes was Rs 15.44
trillion. If I look at the RBIs report of money in circulation as at 18-11-16 total reserve money
supply is 14.269 trillion as against 17.877 trillion as at 11-11-16. Implies that the net money
sucked out of the system is just 3.60 trillion only.
It should be noted that the Finance Minister Mr. Arun Jaitley, during his interview at HT
Leaders summit, has stated that the entire money that has been demonetized will not be
remonetized, certainly providing for the increase in use plastic money, e-wallets, online
transactions and also black wealth that might have been eliminated from the system. With the

From the statement of Mr. Arjun Ram Meghwal in parliament and RBI money supply data as at 11-11-16

T. Sridhar, Nov 2016

above numbers of just 3.6 trillion effectively sucked out of the system, I tend to confirm that
RBI has provided adequate money supply in the economy, which would be quite sufficient
to sustain normal economic activities.
Theoretically there should not be any adverse impact on the economy or GDP as feared by
many so called pundits and scholars, on account of withdrawing Rs 3.6 trillion worth of
currency from the system because:
1. Increase in use of Rupay cards is over 118%4, debit and credit cards by over 70%
(means cash transactions are being replaced by card transactions), in the first week of
demonetization. A point to be noted is that there has been a substantial increase in
POS transactions not just ATMs, which implies that the people are doing commercial
transactions and not just cash withdrawals.
2. Also out of the Rs 15.5 trillion that has been demonetized, Rs. 8.5 trillion has been
deposited into the bank accounts5 and Rs 2.16 trillion has been withdrawn, implying
that the cycle of in and out from the banks has started. The difference between the
deposits and withdrawals which is approximately Rs 5 trillion would be the additional
deposit with the banks.
Data on currency exchange and deposit (In Rs. crores)6
Exchange

Deposits

Withdrawal

Nov 10 - Nov 18

33,006

5,11,565

1,03,316

Nov 19 - Nov 27

942

2,99,468

1,13,301

33,948

8,11,033

2,16,617

Total

http://economictimes.indiatimes.com/industry/banking/finance/banking/rupay-card-usage-jumps-118-per-centin-1st-week-of-demonetisation/articleshow/55757235.cms
5
From the statement of Mr. Arjun Ram Meghwal in parliament and RBI money supply date as at 11-11-16
6
Data from RBI

T. Sridhar, Nov 2016

3. Another unsung hero is the increase in domestic savings deposited on account this
demonetization, which is over Rs 5 trillion as of writing this report, which is equal to
approximately USD 73 billion. So much money will be available to the banks for
further lending thereby spurring an unprecedented economic growth. We always crave
for FDIs which was the highest in the FY 16, totaling USD 55.4 billion. In contrast to
that in just two weeks Indian public have brought in funds worth USD 73 billion to the
banking system. The move has unleashed the unutilized internal wealth.
4. One key indicator that has been showing a steady increase over past decade in India
is the bank deposit to GDP ratio. From around 45% in the year 2001 it has grown to
71% in the year 20167. Hence increase in bank deposits would have a direct impact
on the GDP growth of India.
5. Even though there is no clear numbers to support my argument, the loss of GDP that
was expected on account of such demonetization exercise, could well be compensated
by the hitherto uncaptured GDP data / cash economy data which would now be
captured on account of online / card transactions.
6. Rs 3.6 billion which has effectively been sucked out of the monetary system is just 25%
of the total old value of 500 and 1000 denominations, which is more or less equal to
the black money hoarded and kept as currencies. (My estimate corroborates closely
with the assessment done by India times in its article which places the black money
sucked out of the system to be at Rs 4 trillion.
http://www.indiatimes.com/news/india/rs-4-lakh-crore-that-s-the-amount-of-blackmoney-that-will-be-eliminated-from-the-indian-economy-after-demonetisation266677.html ) there is no valid proof for this claim that the hoarded black money is
25%, even though it has been widely spoken and accepted number, but would be
validated on 30th December when final numbers will be available. So in theory the
cash notes that have been demonetized have been replaced in a week, the question is
has it reached the last mile?
7. Elimination of fake and counterfeit currency.

https://datamarket.com/data/set/28m2/bank-deposits-to-gdp#!ds=28m2!2rr3=16&display=line

T. Sridhar, Nov 2016

Counterfeit Currency Detected, 2015-16

Denomination

Counterfeit
Notes

Notes in
Circulation

Counterfeit
(%)

Counterfeit
Value

Total Value

2,5

11,626 million

Rs 7

Rs 4,069.1 crore

10

134

32,015 million

Rs 1,340

Rs 32,015 crore

20

96

4,924 million

Rs 1,920

Rs 9,848 crore

50

6453

3,890 million

0.0000017

Rs 322,650

Rs 19,450 crore

100

221447

15,778 million

0.000014

Rs 2.21 crore

Rs 1,57,780
crore

500

261695

15,707 million

0.0000167

Rs 13.09 crore

Rs 7,85,350
crore

1000

143099

6,326 million

0.0000226

Rs 14.31 crore

Rs 6,32,600
crore

Source: Reserve Bank of India

Note: Assuming number of Rs 2 and Rs 5 notes to be equal

The above table represents the fake currency detected and reported in the system, a point
to be noted is that just three banks Axis, ICICI and HDFC report 80% of such counterfeit
notes, which implies that such notes are not detected fully in other banks. A data from
Indiaspend reports that the only 6 out of every 250 fake currency is reported. Going by
that percentage the estimated fake currency that would have been eliminated would be
Rs 1,2 trillion.
Adding it up with anticipated 3.6 trillion black money, the total counterfeit and black
money that would have been eliminated would be Rs 4.7 trillion.
8. Several key sectors such as cement have shown rebound in the growth after an initial
impact for about a week. Rabi sowing has been 8% more than the previous year
implies that the rural India has not been hit as badly as propagated in the news media 8.

Speech by minister of coal Mr. Piyush Goel at the HT Leadership summit

T. Sridhar, Nov 2016

9. If not anything else, the move has improved the tax collection of all civic bodies across
India. Municipalities, metropolitan corporations, and other civic bodies have reaped a
higher tax collection9 post November 8th.

A summary of above mentioned points would indicate that there may not be any adverse
effects on the economy.

MYTH -3 UNDER PLANNED AND IMPROPER IMPLEMENTATION

Everyone has liberty to speak in a free democracy, however if they speak with facts, rather
than rhetoric it would sound nice. I have tried substantiate my counter claims on the best
available and authentic numbers.

NOTE PRINTING CAPACITY OF RBI:

One of the criticisms widely discussed is that it will take about a year to replenish the
demonetized notes, which is totally incorrect according to the number analysis that I have
provided hereunder. RBI has not made it specific on the details of how much preparation it
has made prior to the announcement. Even if we consider the exercise started immediately
after Mr. Urjit Patel took over, (since the notes are signed by him), it had full two months and
it would have easily made up the required currency notes.

http://www.hindustantimes.com/india-news/demonetization-windfall-civic-agencies-record-268-increase-intax-collection/story-O3YsryY0WtdefZy8vdBMFM.html

T. Sridhar, Nov 2016

I am able to access one of the presentations made by RBI10 in the year 2004. Assuming that
the capacity has not been augmented after that which is unlikely, the present printing capacity
of RBI is 42 million notes per annum working three shifts per day. (The presentation states
28 million in 2 shifts). The appended table shows the MO or reserve money supply in the
country before demonetization and after demonetization. The table shows that effectively Rs
3.6 trillion has been withdrawn and not replaced.
Reserve Money : Components and Sources
Rupees Billion

Components

Reserve Money

Reserve
RBI's
Currency
RBI's
`Other' Bankers' Money Claims on
Components
in
Claims on
and Sources> circulatio deposits deposits (Liabilitie
- Central
with RBI with RBI s/Compo Governm
n -Total
Govt
nents) ent (net)
18 Nov 2016
11 Nov 2016
04 Nov 2016
28 Oct 2016
21 Oct 2016
14 Oct 2016

14,269.86
17,877.24
17,974.60
17,772.95
17,590.43
17,747.09

209.64
202.91
205.53
159.62
152.20
180.70

4,333.49
4,410.72
4,365.60
4,463.22
4,380.25
4,298.62

18,812.99
22,490.87
22,545.73
22,395.79
22,122.88
22,226.41

6,370.38
6,467.81
7,158.55
6,472.65
6,088.01
6,546.94

Sources
RBI's

RBI's
RBI's
Claims on Claims on
Banks & Banks
Commerc (Including
ial sector NABARD)

6,339.71 -3,189.42 -3,253.77

6,446.79
424.88
345.10
7,115.92 -226.01 -302.98
6,455.04
289.52
215.85
6,063.88
428.14
355.30
6,510.23
160.56
86.28

claims on
Commerc
ial sector
(Excludin
g
64.35
79.78
76.97
73.67
72.84
74.28

Net
Govt't
Net nonforeign currency
monetary
exchange liabilities
liabilities
assets of to the
of RBI
RBI
public
24,827.95
24,558.91
24,521.87
24,487.13
24,479.55
24,394.84

232.73
232.73
232.73
232.73
232.73
232.73

9,428.65
9,193.46
9,141.41
9,086.24
9,105.55
9,108.66

Money value in 500 and 1000 prior to demonetization Rs 15.4 trillion

Money sucked out of the system

Rs 3.6 trillion

Net new money supplied

Rs 11.8 trillion

Notes that could be printed in 2 months

Rs 7.0 billion

5 billion X 2000 + 2 billion x 500

Rs 11 trillion

Hence by just printing more of Rs 2000 notes, RBI could have easily met the cash requirement
in the preparation time it had i.e. two months. The reserve money supply data by RBI in the
above table suggests that RBI might have done the same by printing more of Rs 2000 notes.

10

https://www.google.co.mz/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&cad=rja&uact=8&ved=0ahUKEwiGib
_Z6tfQAhVJL8AKHcWCBYsQFggoMAI&url=https%3A%2F%2Fwww.rbi.org.in%2Fcurrency%2Fpresentation%2F
Currency-presentation.ppt&usg=AFQjCNEEwdQYvR326suF88shlowVki05qw

T. Sridhar, Nov 2016

INDIAN RURAL POPULATION IS UNBANKED:

This is the second most talked about issue that majority of the population in India is
unbanked. The numbers available prove contrary to this. The following table provides the
population of India as well the adult population in India to be approximately 800 million.
Age

0-14

years: 27.71%

structure

15-24

years: 17.99%

25-54
55-64

(male

186,420,229/female

164,611,755)

(male

121,009,850/female

106,916,692)

years: 40.91%

(male

267,203,029/female

251,070,105)

years: 7.3%

(male

46,398,574/female

46,105,489)

65 years and over: 6.09% (male 36,549,003/female 40,598,872) (2016

est.)
Number of adults in India as at 2016 is 808,146,00011,
When we need to speak on the number of bank accounts, for transaction purpose, we need
to consider the number of households rather than the total population of the number of adults.
The number of households in India is approximately 250 million.
Pradhan Mantri Jan - Dhan Yojana Accounts Opened as on 23.11.2016 (All Figures in
Crores)

11

Credit Suisse Global wealth data book 2016

T. Sridhar, Nov 2016

For arguments just 250 million individual bank accounts would suffice to tide over any
banking emergency for unbanked population. The following table presents the number of
bank accounts in India as at March 2015.
TABLE NO. 1.18 - POPULATION GROUP-WISE DEPOSITS OF SCHEDULED COMMERCIAL
BANKS, ACCORDING TO TYPE OF DEPOSITS, MARCH 2015
(No. of Accounts in Thousand, Amount in ` Million)
CURRENT
No. of
Amount
POPULATION GROUP
Accounts
1
2
RURAL
12,139
478,479
(2.5)
(5.2)
SEMI-URBAN
12,108 1,014,829
(3.0)
(7.7)
URBAN
12,072 1,850,777
(4.5)
(9.4)
METROPOLITAN
16,262 5,295,361
(5.9)
(11.2)
ALL-INDIA
52,581 8,639,447
(3.7)
(9.7)

SAVINGS
TERM
No. of
Amount
No. of
Amount
Accounts
Accounts
3
4
5
6
437,084
4,403,804
44,746
4,274,482
(88.5)
(48.1)
(9.1)
(46.7)
345,221
5,480,710
47,332
6,676,968
(85.3)
(41.6)
(11.7)
(50.7)
198,141
5,775,743
56,015 12,022,489
(74.4)
(29.4)
(21.0)
(61.2)
189,873
7,806,331
68,899 34,141,140
(69.0)
(16.5)
(25.1)
(72.3)
1,170,319 23,466,587
216,992 57,115,078
(81.3)
(26.3)
(15.1)
(64.0)

TOTAL
No. of
Amount
Accounts
7
8
493,970
9,156,765
(100.0)
(100.0)
404,661 13,172,507
(100.0)
(100.0)
266,228 19,649,009
(100.0)
(100.0)
275,033 47,242,831
(100.0)
(100.0)
1,439,892 89,221,112
(100.0)
(100.0)

India had 1.17 billion savings accounts against a population of 1.3 billion. The number
adequately covers the adult population of just over 800 million and households of 250 million.
However after March 2015, which is the date of this report, Jhan Dhan Yojna has now opened
over 257 million accounts. Adding this number to the available number as at March 2015.
To put it in a nutshell we have number of savings account to the tune of 1.42 billion against
the adult population of 800 million and household number of 250 million. From the above
numbers we can safely assume that if not 100% of the population, a vast majority of the
population have been covered by banking system.

NOT ALL HAVE PLASTIC MONEY / CARDS TO OPERATE

The table presented in the next page provides the number of cards issued as at August 2016
(source RBI). 712 million debit cards and 22 million credit cards are in operation in India
which adequately covers the adult population in India, and covers the number of households
by three times. The important point to be noted is that all Jhan Dhan Yojana accounts which
constitute the rural population and the poor have all been mandatorily been given a rupay
card. A total of 738 million debit cards and credit cards have generated close to a billion (981
million) transactions, which is a fairly good number for such a cash dependent economy.
T. Sridhar, Nov 2016

ATMs

Sr. No.

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56

POS

Bank Name

On-site

Off-site

On-line

ALLAHABAD BANK
ANDHRA BANK
BANK OF BARODA
BANK OF INDIA
BANK OF MAHARASHTRA
CANARA BANK
CENTRAL BANK OF INDIA
CORPORATION BANK
DENA BANK
INDIAN BANK
INDIAN OVERSEAS BANK
ORIENTAL BANK OF COMMERCE
PUNJAB AND SIND BANK
PUNJAB NATIONAL BANK
SYNDICATE BANK
UCO BANK
UNION BANK OF INDIA
UNITED BANK OF INDIA
VIJAYA BANK
IDBI LTD
STATE BANK OF BIKANER AND JAIPUR
STATE BANK OF HYDERABAD
STATE BANK OF INDIA
STATE BANK OF MYSORE
STATE BANK OF PATIALA
STATE BANK OF TRAVANCORE
AXIS BANK LTD
BANDHAN BANK
CATHOLIC SYRIAN BANK LTD
CITY UNION BANK
DEVELOPMENT CREDIT BANK
DHANALAKSHMI BANK LTD
FEDERAL BANK LTD
HDFC BANK LTD
ICICI BANK LTD
IDFC BANK LTD
INDUSIND BANK LTD
JAMMU AND KASHMIR BANK
KARNATAKA BANK LTD
KARUR VYSYA BANK LTD
KOTAK MAHINDRA BANK LTD
RATNAKAR BANK LIMITED
SOUTH INDIAN BANK
TAMILNAD MERCANTILE BANK LTD
THE LAXMI VILAS BANK LTD
YES BANK LTD
AMERICAN EXPRESS
BANK OF AMERICA
BARCLAYS BANK PLC
CITI BANK
DBS BANK
DEUTSCHE BANK LTD
FIRSTRAND BANK
HONGKONG AND SHANGHAI BKG CORPN
ROYAL BANK OF SCOTLAND N V
STANDARD CHARTERED BANK LTD
Grand Total

1
811
2,952
6,263
3,436
1,282
5,289
3,512
2,261
1,272
2,419
2,720
2,268
1,053
5,193
3,381
2,084
4,377
922
1,425
1,750
1,167
1,814
20,254
1,095
1,174
1,132
3,077
252
188
686
174
194
1,108
5,628
4,842
15
797
608
521
749
941
149
766
430
331
629
58
5
13
1
68
12
103
103,651

2
407
796
4,151
4,371
586
4,631
1,804
849
199
711
979
326
221
4,585
391
570
2,531
1,134
273
1,630
811
566
29,501
330
344
596
10,166
58
675
292
179
480
6,392
9,412
1
1,130
426
791
942
1,098
224
537
613
595
1,102
500
25
19
5
51
5
139
99,150

3
10
2,364
37,105
5,364
4,959
1,352
102,746
1,482
3,696
2,798
23,252
2,359
30,492
1,556
18,180
2,960
6,387
329,222
4,957
5,761
3,690
271,297
3,724
722
737
8,964
288,785
202,366
1,508
5,795
3,456
10,703
3,506
3,478
2,107
2,822
20,599
16,226
24,185
1,461,672

T. Sridhar, Nov 2016

ATM & Card Statistics for August 2016

Credit Cards

No .of
outstanding
Off-line cards as at
the end of
the month

Debit Cards

No. of Transactions
(Actuals)

ATM

POS

Amount of
transactions
(` Millions)
ATM

300
300

155,278
121,130
143,083
204,109
107,582
84,268
76,438
42,449
201,144
70,086
152,922
47,452
11,454
3,933,015
2,752,132
493
5,198
7,108
7,955,406
3,930,904
484,504
48,030
847,500
193,555
7,974
9,677
884,973
7,208
2,416,108
446,610
1,031,150
26,378,940

15,150
7,661
18,927
39,186
4,450
2,443
4,337
861
7,307
2,795
2,802
9,923
352
96,905
107,439
175
867
74
190,594
30,170
9,029
2,884
16,673
4,810
89
3,955
133
56,899
4,817
5,243
646,950

264,630
257,085
163,453
324,890
135,127
113,209
121,965
30,312
250,581
94,788
126,329
104,266
39,150
12,353,739
6,423,610
1,833
9,430
13,667
26,035,485
11,266,773
1,237,288
71,168
1,889,345
552,376
11,783
23,205
4,529,103
28,244
13,001,145
1,147,693
3,332,620
83,954,292

No .of
outstanding
cards as at
the end of the
month

POS

70
27
105
193
23
12
17
3
30
12
13
52
2
437
269
0
4
0
1,080
109
48
10
73
30
0
27
1
336
35
24
3,043

623
585
402
787
291
276
259
74
496
185
713
318
87
32,691
22,496
2
19
30
75,415
28,748
7,882
169
5,153
2,216
30
64
31,950
160
33,760
3,471
8,133
257,486

10
9,732,492
19,278,605
36,281,196
38,894,838
5,939,274
33,710,469
21,078,976
10,251,584
6,221,401
15,674,330
14,634,470
9,700,359
2,391,767
46,951,147
12,325,491
9,159,472
17,603,892
8,506,200
4,866,326
9,612,981
12,625,906
16,340,998
204,259,667
6,643,326
7,473,961
11,983,297
16,834,090
8,312,867
819,358
1,554,583
349,071
612,248
5,082,139
24,354,263
34,319,576
52,889
2,874,366
3,350,947
3,366,485
4,046,424
3,976,929
498,330
3,295,070
984,609
1,096,555
1,274,084
3,473
1,569,214
234,003
100,579
61,236
438,383
74,909
786,682
712,465,787

No. of Transactions
(Actuals)

Amount of
transactions (`
Millions)

ATM

POS

ATM

POS

11
5,688,251
16,122,213
18,162,497
27,895,162
6,018,827
19,682,845
10,462,136
6,264,265
2,507,831
22,146,055
21,679,664
5,160,924
1,223,812
23,991,312
10,806,158
5,242,578
17,523,479
5,188,783
4,598,482
9,045,008
10,617,479
20,111,354
313,547,386
7,678,875
5,553,272
16,627,843
25,233,556
3,075,645
409,808
1,966,446
538,054
446,712
5,012,044
36,998,383
35,152,914
71,132
2,145,996
2,879,288
3,560,061
5,080,918
5,370,430
345,315
2,585,258
3,378,084
770,607
2,851,215
426
2,875,537
42,331
169,802
22,829
413,028
68,326
1,727,804
756,738,440

12
570,415
1,356,874
3,667,125
3,764,044
480,858
3,589,696
1,337,451
1,442,465
323,110
2,051,017
731,297
428,212
108,732
4,886,199
708,777
1,214,344
1,166,253
627,714
501,230
2,347,585
915,644
1,722,201
32,387,787
637,154
565,617
1,244,589
9,707,847
137,862
30,841
431,268
135,919
53,867
1,169,934
19,476,068
18,933,042
26,739
844,206
45,779
677,428
923,485
2,417,313
105,896
560,396
75,058
61,761
854,715
159
3,221,472
68,326
123,994
2,378
423,240
26,724
1,216,897
130,529,004

13
16,043
51,394
72,520
58,704
21,019
78,731
39,424
23,900
9,148
42,471
38,248
20,604
3,605
103,114
29,490
19,037
53,496
19,577
14,273
37,776
26,825
48,511
645,293
16,748
14,979
46,088
121,374
4,868
1,275
8,266
1,868
1,816
24,731
177,175
167,520
197
9,172
14,671
13,073
22,126
20,446
1,268
9,850
13,428
2,947
9,649
3
10,807
130
800
124
1,964
328
5,684
2,196,575

14
692
1,339
3,685
3,508
853
4,349
1,632
1,766
323
2,138
15,225
724
160
4,958
931
1,068
1,567
701
867
2,797
781
2,171
38,591
988
684
2,059
14,578
201
88
480
253
125
1,851
26,416
26,804
31
1,160
160
838
990
3,497
143
779
193
130
1,199
2
6,324
83
239
6
818
46
1,714
183,705

NOT ENOUGH POS EQUIPMENT / ATMS TO SUPPORT CASHLESS

SOCIETY
Another standard argument is the low penetration of ATMs and POS machines in the country
to adequately support the demonetization effort and emergence of cashless society. The rapid
emergence of E-Wallets have reduced the need for POS and ATMS to a great extent.
There are some 20 to 30 mobile payment / e-wallet companies in India the enrollment to
them has leapfrogged post demonetization. The following are some of the numbers
Number of ATMs

- 202,801

Number of POS

-1,461,672

Value of ATM transactions

- Rs 2,199,618 million

Value of POS transactions

- Rs

Number of PayTm Users

- 158 million12

Number e-wallet users

- 405 million13

441, 194 million

Number of merchant registration PayTM - 1,000,00014

As we have seen from the above numbers, India is skipping plastic cards and are moving
towards e-wallets. Hence it is not necessary to have the number of POS and ATMs to have a
digital payment system. Simple payment systems such as e-wallets and other payment
initiatives by government such as Unified Payment System, which works on USSD technology
have the capacity to replace the need of more ATMs and POS machines. In just over one
year, a single e-wallet company PayTM has added 1 million merchant registration which in
turn is equivalent to POS for cards. Considering the market share of 39% for PayTm we could
deduce the total number of merchant registration with all the e-wallet companies put together
to the tune of 2.5 million. Hence all the above points would sufficiently counter the myth that
the government was not prepared, had not planned well and has not implemented well.

12

http://www.bloombergquint.com/business/2016/11/28/the-party-has-just-started-for-digital-wallets-in-india
As per Nielsen report, PayTM has 39% market share and hence 100% of the market has been computed
14
https://blog.paytm.com/journey-to-1-million-merchants-bringing-in-the-cashless-revolutionadce3ae9221#.a3m4ejh84
13

T. Sridhar, Nov 2016

DEMONETIZATION WILL AFFECT FARMERS THE MOST

There is yet another argument that the demonetization has been introduced during the khariff
sowing season, which would severely impede the farmers ability to buy seeds and plant hence
would affect the food production. The appended table presents the data on khariff sowing
season which indicates the area has actually increased by about 8.6% in this season15.
Lakh hectare
Crop

Area sown in 2016-17

Area sown in 2015-16

Wheat

173.93

152.56

Rice

13.37

14.84

Pulses

112.95

99.83

Coarse Cereals

44.59

51.40

Oilseeds

70.70

64.21

Total

415.53

382.84

Sowing season could not have registered any increase had there been any strain in the
commercial transactions at rural levels.

MYTH -4 GDP WILL SLOW DOWN TRADERS WOULD BE HIT

HARD
Plethora of views from self-proclaimed economic gurus, Nobel laureates political pundits and
the list goes portend to a drastic, disruptive shock to the economy and GDP growth. I tend to
rely on the research and data published by Nielsen, an apolitical
repute.

research organization of

Nielsen published its first report within 48 hours of the announcement of

demonetization and the second one after three weeks of the demonetization announcement.
In the first report Nielsen had predicted the following points after a quick survey done in 48
hours.

Priority 1: Low impact - Grocery and other household Food items such as packaged
grocery, edible oil, tea-coffee etc.

15

http://pib.nic.in/newsite/pmreleases.aspx?mincode=27

T. Sridhar, Nov 2016

Priority 2: Medium impact - Home and Personal Care categories like Toilet Soaps,
Toothpaste, Detergent, Shampoo, etc.

Priority 3: Highest impact Impulse and Non-Essentials like Biscuits, Chocolates, Soft
drinks, Frozen Foods, Packaged Foods, Snacks etc.

It followed up the research with it second report, the salient features are furnished hereunder:

GOING DIGITAL:

Roughly 1.2 crore more Indians started using digital wallets in a single week. The reach of
mobile payments increased by 6% in the week of the announcement as compared to the
previous week, to peak at the highest ever reach of 70%. Usage frequency also surged by
15%.
Indian society is highly adaptive and the shift from cash to digital on a very short period
of time indicates the resilience and adaptive nature of Indian population. Apart from any
other point, the public on general have bought into the concept and have reposed the
faith in the Prime Minister Modi. The second survey conducted by Nielsen has tabulated
the consumer sentiment on the whole exercise, which has put an end to the much criticized
survey done by the PM on his private portal. 74% of the Indian population have rate the
demonetization exercise as positive development.

T. Sridhar, Nov 2016

MODERN TRADE

Foods witnessed the highest increase in growth during the demonetization week at
19% vs. year-ago. Within the food basket, packaged grocery and cooking medium
saw a big upswing. Tea, packaged atta and rice, baby food, milk food and non-refined
oil also contributed to the growth.

T. Sridhar, Nov 2016

Impulse categories (biscuits, chocolates, salty snacks and confectionery) also grew, but
at a much slower pace. Soft drinks slowed down significantly; however, the onset of
winter could also be contributing to this slowdown.

Volume growth patterns in foods indicated a shift to bulk packs. Much of this could be
driven by retailer private labels or the ongoing offers in the demonetization week.

Non-food sales grew as well, driven by personal care (17% in demonetization week
vs. a 4.8% growth year-till-date before demonetization). All non-food categories
including essentials like detergent powders and cakes, toothpaste, shampoo etc., saw
a healthy double-digit growth (despite demonetization falling right after the monthly
shopping period).

The sample data for selected group of essentials during the first week of demonetization Vs
the yearly average, shows an increased sales growth in all sectors but for impulse food such
as soft drink etc.,

T. Sridhar, Nov 2016

Nielsen also analyzed the impact of the demonetization initiative on FMCG sales in organized
wholesale stores, otherwise known as Cash and Carry in India. Cash and Carry provides an
early indication of any slag or spurt in demand arising from changes in the domestic
environment. An initial read during the week of demonetization from Nielsens Scantrack
Cash and Carry service, which offers a weekly read of Cash and Carry POS sales from 100%
of organized wholesale stores across India, threw up some interesting findings.

Cash and Carry FMCG value sales slowed down due to demonetization.

Retailers stocked up on essential products in anticipation of higher consumer demand

of essentials in the weeks following the note ban. As a result, the slowdown was
primarily due to non-food categories. Among non-food categories, personal care
women was least affected while personal care-general saw a bigger impact.

Food categories received a mixed response with certain categories having witnessed
positive tailwinds while other categories saw a dip in demand from retailers. Impulse
food witnessed the steepest decline in demand, while cooking oil and packaged
grocery saw an exorbitant demand from retailers on the back of the belief that
consumers would prefer to stock up on essentials in wake of the cash crunch.

T. Sridhar, Nov 2016

CONCLUSION
Going by the above points we can come to the following conclusion
1. RBI has and might have adequately replaced up to 75% of demonetized value with
the new 500 and 1000 notes within the two months it might have had.
2. People of India are very much adaptive and is evident from the massive support for
the move and quick change to e-wallets
3. Even in the first week of demonetization some sectors of the economy have shown
growth while some other sectors such as impulsive purchase sector (biscuits, soft drink
etc.,) have shown decline.
4. Farmers and kharif sowing does not seem to have been affected, reflected by the
increase in sowing area
5. Net increase in the bank deposits of over Rs 5 trillion is expected to increase bank
credit and hence spur overall development
6. Even though many of the hoarders have used Jhan Dhan accounts to evade tax, we
presume that the tax base of the government would increase form the present 5 crores
to 10 crores in the coming financial year.
7. Despite the hype created in various media, the numbers indicate a different picture.

T. Sridhar, Nov 2016