Demonetisation: An Estimation of Losses due to ATM Queuing

We highlight the inconvenience and the consequent losses that the general public has faced due to one factor: difficulty in withdrawing cash from ATMs. Our methodology is based on a widely-used technique—“willingness to pay.” The monetary value of losses thus obtained could be viewed as "cash transaction tax"—an implicit tax that the government has imposed on cash transactions due to the lack of liquidity. This tax can therefore be thought of as the government’s way of incentivising cashless transactions in the country.

The central government’s decision to render ₹500 and ₹1,000 denomination notes as invalid legal tender has been a part of various social, political and economic discussions since the announcement on 8 November 2016. The government’s claims of a “surgical strike” on black money mellowed down as the days passed. The sudden shift from “surgical strike” to “cashless India” was arguably a desperate damage control measure by the government. Economists from across the spectrum have cautioned against the fallout of the resultant liquidity crunch (Basu 2016; Venugopal 2016; Gopinath 2016; Patnaik 2016; Rai 2016; Rogoff 2016). The long-term effects are more debatable and uncertain, but things do not look very rosy there either (Mishra 2017). To make matters worse, the government’s haste and lack of preparedness (reflected in the long queues, lack of cash in banks and ATMs, poor management by the RBI and banks, non-calibrated ATMs, and of course the printing of notes and their distribution) made daily life of ordinary citizens difficult.

In the following sections, we present our methodologies, effects of demonetisation and the main results from our survey. Finally, we end with some comments on “Cashless India” which is being projected as a “magic bullet” for various problems.

1 Methodology

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Notes

[1] To do a full accounting of the willingness to pay, we would need to know how much time people spent in a queue on their successful trip to an ATM along with their travel time to join the queue as well as the cost of travel to the ATM. Our method does not do a full accounting, but tries to incorporate some of these hidden costs.

References

Basu, Kaushik (2016): "In India, Black Money Makes for Bad Policy," New York Times, 27 November, https://www.nytimes.com/2016/11/27/opinion/in-india-black-money-makes-for-bad-policy.html.

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