Demonetisation: Truth Vs Hype [Part II]

This is the second of a two part series on Demonetisation.


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 authenticated numbers.


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.

I am able to access one of the presentations made by RBI[7] in the year 2004 which mentions the capacity of government press to print currencies.  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 The table shows that effectively Rs 3.6 trillion has been withdrawn and not replaced.



  • 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 Rs2000 + 2 billion x Rs500 – 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.


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.




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   441, 194 million

Number of PayTm Users                         - 158 million (Credit Suisse – Global wealth data book 2016)

Number e-wallet users                            - 405 million [8]


Number of merchant registration PayTM  - 1,000,000 (As per Nielsen report, PayTM has 39% market share and hence 100% of the market has been computed)

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.


There is yet another argument that the demonetization has been introduced during the Rabi 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 Rabi sowing season which indicates the area has actually increased by about 9% in this season[9].



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


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  research organization of repute. 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.
  • 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 two weeks into demonetisation, the salient features are furnished hereunder:




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.






  • 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.
  • 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.,

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 Nielsen’s 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.




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 Rabi sowing do 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.

The article was originally published on LinkedIn.  

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