Impact of Demonetization on Indian economy through lens of domestic air traffic


Growth of the Economy in general measured by the Gross Domestic product (GDP). But there are many indicators which act as proxy to gauge the economic growth. Satellite data of the night light use to measure the growth of economy. Likewise transportation sector is also a good indicator and proxy to GDP to measure the economic changes. This paper studied the impact of the demonetization on Indian economy through the air traffic data. The results show the massive slump air traffic in post demonetization period on routes having commercial importance and lesser impact on the tourism routes.

Introduction:-

A 2012 research paper by the Japan-based think-tank IDE-JETRO used night-lights data to show that most economic activity is concentrated in regions surrounding the capital Yangon of Myanmar. [1]. Likewise, the infrastructure and especially transport infrastructure is closely linked to economic growth.  Li Keqiang, A High rank official of china suggested an alternative indicator of measure the economic changes which is based on the data o the railway cargo volume, electricity consumption and loans disbursed by banks. [2]

In India, infrastructure's link to the economic growth is well recognised. Economic survey of the 2020 noted that - "Investment in Infrastructure is necessary for growth. To achieve the GDP of $5 trillion by 2024-25, India needs to spend about $1.4 trillion (`100 lakh crore) over these years on infrastructure." [3]

Transport demand and supply is closely linked to the Economy. In fact, Infrastructure acts as fuel to the growth engine of the economy. When economy grows more, there is more demand of the coal transport between Jharkhand to Maharashtra. When Economy slumps, ait trips of businessmen between Delhi and Mumbai also reduce.

In This paper, I study the change took place in the air traffic after demonetization.


Data Collection:-

Director General of Civil Aviation (DGCA) published the month wise data on their website. [4]  I collected data from there. Following is an Example of the data collected.

Number of Passengers travelled Between cities
Month
Ahm-Mumbai
Mumbai-Ahm
Ahmedabad-Goa
Jul-15
77364
76263
4415
Aug-15
84453
79857
4395
Sep-15
84257
82079
4498
Oct-15
72612
75662
4785
Nov-15
89493
92810
8940
Dec-15
100086
101057
9834



Methodology:-

Selected 10 Routes, 5 having commercial importance and 5 having the Tourist attraction. Choose routes in such way that include at least 1 route from each region of the country.

Tourism and Commercial places have some particular hike/dip in demand during days or weeks, so, analysed the data on basis of the month.

Demonetization was imposed in the month of the November 2016. Therefore chose 120 days period pre demonetization and 60 days period post demonetization to find the changes in domestic air traffic. Chose July to January for the year 2015 and 2016 for the analysis.


Literature Review:-

Liisa Ecola and Martin Wachs, The RAND Corporation in study "Exploring the Relationship between Travel Demand and Economic Growth" (2012) shows that how the transport demand and the economic growth is closely linked. They argued that, vehicle miles of travel (VMT) is a better indicator than GDP to measure the economic growth.

Satoru KUMAGAI, Souknilanh KEOLA and Toshihiro KUDO in research paper "Policy Review on Myanmar Economy" (2012) estimated the GDP of the various region of the Myanmar by using the light illumines satellite pictures at night.

Elena Cigu, Daniela Tatiana, Agheorghiesei Anca, Florentina Gavrilut, and Elena Toader in study " Transport Infrastructure Development, Public Performance and Long-Run Economic Growth: A Case Study for the Eu-28 Countries" (2018) Examined the link between the transportation and economy.


Study Routes:-

Routes having commercial importance ( Sky blue colour)
  • Ahmedabad to Mumbai
  • Mumbai to Ahmedabad
  • Surat to Delhi
  • Kolkata to Chennai
  • Mumbai to Delhi

Routes having tourist importance ( Grey Colour)
  • Ahmedabad to Goa
  • Delhi to Udaipur
  • Bangalore to Varanasi
  • Mumbai to Goa
  • Mumbai to Jammu


Calculations:-

Demonetization was imposed in the November 2016. To gauge the trend of the domestic air traffic, I selected the period of the month of July.

I calculated the at which rate domestic air traffic was growing/receding for the month of the July to January which is 120 days pre demonetization and 60 days post monetization period.


Here is the calculation of the Change in the domestic air traffic in year 2016 inrespect to the year 2015 for the months of July to January.




Findings :-






> On the commercial route, there is a massive dip in the air traffic. In 3 out of 5 routes , the Growth went to negative. i.e Mumbai - Ahmedabad growth rate in October 2016 was 7% which reduced to -5% in November.

 > On Tourist route, the Growth remained positive but the growth rate decreases significantly. i.e Delhi - Udaipur air traffic was growing on rate of more  80% which reduced to 25%. 

 > Though the tourist route regained the growth momentum in short time, the Commercial route struggle for long time to regain growth.



References :-

[1] Satoru KUMAGAI, Souknilanh KEOLA and Toshihiro "Policy Review on Myanmar Economy" (2012) 

[2] The Economist "China's economy - Keqiang ker-ching" (2010)

[3] Economic Survey of India (2020)



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