Example of how sudden demonetisation ended black money enabled markets

Since all these market stakeholders relied heavily on unaccounted cash transactions and thus could make better profits while keeping their product prices lower than those who relied on cashless transactions and followed the law of the land. Furthermore,demonetisation induced this drop in turnover suggests that 25% of the market was funded by black money and contributed ₹4000 Cr. to the black economy.

The plywood industry’s annual turnover dropped from Rs 16,000 crore in 2016 to Rs 12,000 crore now. 350 plywood manufacturing units shut down , as did 500 units supplying raw material; production at more than 100 units was halved. He and his wife saved Rs 4,000, and he had few complaints.


After demonetisation, payments were delayed due to the sudden cash crisis, which brought down the industry, We had no funds to buy raw material, and we also could not pay for the manufacture of raw material which we had earlier purchased.


Due to the cash crunch, businesses could not pay in the form of unaccounted cash. instead they had to use accounted cash for banking instruments, but since accounted for cash was low as compared to their business operations they now could only operate at levels which were legitimate.

Demonetisation crippled the construction sector and pulled down demand for plywood by about 40%.


The construction sector, one of the largest contributor to black economy directly pushes the plywood sector to contribute 40% of its own market size towards generating black money

Between 2011 and 2017, no licenses were issued to open up plywood manufacturing units. However, in 2018, the BJP government opened licensing applications for plywood units without carrying out an inventory of the amount of wood available.


At one end the article says that plywood manufacturing units have closed down and on the other end it is also saying that due to unabated licensing without carrying out inventory there is a supply demand mismatch. Which is true, is there an increase in the number of units or a decrease?

There are two things which the article missed, One do we as a nation want jobs at the cost of a black economy. The real beneficiaries of black economies are the ones who fund it and not the ones who are employed by it. Second, since such businesses which generate black money for their principals feel comfortable in their current operations as they are generating incomes and profits comfortably and thus do not upgrade, create more value or diversify and fall into a spiral of cutting selling prices to stay competitive.