PM Narendra Modi's demonetisation drive to cost the economy Rs 1.28 lakh crore

According to the Centre for Monitoring Indian Economy (CMIE), PM Narendra Modi’s demonetization drive is estimated to cost the economy Rs 1.28 lakh crore. The calculations have been done until December 30, by when people are required to exchange old Rs 500 and Rs 1000 currency notes.

This however does not include many indirect costs, such as those from disturbing the supply chain, says the study by its managing director, Mahesh Vyas.

As per the study, the highest cost at Rs 61,500 crore, would be borne by the enterprise sector, which covers all businesses that produce goods and services and are also involved in the supply clain comprising farmers,m transporters, retailers, manufacturers etc.

It also states that the entire supply chain of goods and services, a large part of which is cash-based will suffer a massive liquidity shock..

"This cash-based economy is unable to continue transactions because of the sudden fall in availability of cash. It is unable to meet business and financial obligations, and unable to liquidate stocks and receivables into cash. In fact, it is very busy dealing in converting the old currency it used to conduct business hitherto," says the study.