Edition 4 | August 2017

STEPHANIAN
FINANCE
REVIEW
Fourth Edition

August 2017

The Finance and Investment Cell

St. Stephens College, Delhi
Contents

From the Editor

Common South Asian Currency: The 21st Century Pandoras Box

Ankit Sharma and Veni Gupta, Hansraj College, Delhi

The Long Straddle Options Trading Strategy

Jacob George, Christ University, Bangalore

Demonetization- The biggest salvation or the biggest mistake? From

Demonetization to the new rhetoric- cashless economy
Kirti Rao and Parul Arora, Shri Ram College of Commerce, Delhi

Effects of Fed Rate hike on the bond markets in the United States
Rachit Sehgal, Kirori Mal College, Delhi

Pratyaksha Hastaantarit Laabh (PaHal) Scheme: move towards fixing Indias

broken subsidies regime?
Enakshi Panda, Payal Priyadarshini, Rituparna Sanyal and Shraddha
Shrivastava, Miranda House, Delhi

Financial Analysis of Investments in Rooftop Solar Systems by Delhi

Household
Archit Jain and Pragya Jat (St. Stephens College, Delhi) and Saumya Joshi (Shri
Ram College of Commerce, Delhi)
From the Editorial Board

The Finance and Investment Cell of St. Stephens College has returned with yet another edition
of its annual finance journal, the Stephanian Finance Review. Started four years ago as one of
Indias first Journals in the field of Finance and Investment at the undergraduate level, it
continues to provide a platform for young students to develop their interest in this field through
the art of writing.

2016 was a year of change, in the worlds of economics, finance, business and politics. With
the occurrence of Brexit, along with the rise of anti-European Union leaders such as Marine
Le Pen and Geert Wilders, the very existence of the EU has been called into question. Thus, it
is interesting to note that our first paper looks at the possibility of establishing a common
currency zone in South Asia.

From SAARC, we move onto options trading, as our second paper examines data related to
stock prices of IT companies, and how a long straddle strategy can help maximise profitability.
Next up, we look at the elephant in the room- Demonetisation. The authors of this paper use
statistical and game theoretic methods to determine the success of this policy. We then proceed
to look at an attempt to fix Indias subsidies regime via the PAHAL Scheme, the impact of a
Federal Fund Rate hike on the US bond market and end with an examination of solar rooftop
system viability in Delhi.

The research papers and articles have been carefully compiled together to enable our readers
to get an insight into the dynamism of the financial world and to help them in their pursuit of
attaining financial knowledge. We hope we have been able to achieve this objective as you can
freely write in to us at fnipublications@gmail.com with your valuable feedback, suggestions
and queries.

Happy Reading!

The Editorial Board

 Common South Asian Currency:
The 21st Century Pandoras Box
The paper examines whether the South
Asian Countries satisfy the criteria to
establish a common currency. The paper
reveals various attributes which negate the
possibility of successful establishment of
the same.
Some crucial factors include the rocky geo-
political scenario due to constant
disruptive battles amongst the nations
which add to the instability breeding in the
region. The lack of fulfilment of the theory
Optimum Currency Area published by
Mundell which talks about maximizing
revenue through common currency also
raises sufficient concerns. Lack of labour
mobility, closed economies of SAARC
hindering capital mobility, the tactical
threat of risk and the uncertainty amongst
non-aligned business cycles contribute to
the prevailing conditions which go against
the said theory. Also, establishing said
policy would require vast structural
changes within concerned economies.
The paper further discusses the cost-benefit
analysis of Currency Area suggested by
Paul Krugman and sheds light on the
dismal state of existing trade between
SAARC nations existence of flourishing
trade being a major motivation behind the
idea of common currency zones.
1Ankit Sharma and Veni Gupta are first year students of Bachelor of Commerce at Hansraj College, University
of Delhi. They can be reached at ankit6221651@gmail.com or ianveni5@gmail.com for comments, queries and
suggestions.
By Ankit Sharma and Veni Gupta 1
The paper also compares the working and
establishment of European Union to the
Southern Asian countries and discusses
the key reasons for application of such
policies as well as the negligible benefit
which might accrue.
Rocky Geo-Political Scenario
The urge for closer cooperation between
countries is often fuelled from the difficult
times a nation or even a continent goes
through. At the end of the Second World
War, Europe was undergoing one of the
most traumatic periods in its rich history;
ironically this helped create the
circumstances under which a successful
partnership amongst the countries could
take place. The situation in South Asia too
was similar as it had suffered a great deal
under the colonial powers. Unfortunately
for the latter, the comparison stops just
here.
Post World War II, Germany and France
had to rebuild their industries with the
proposal to create a higher authority which
could handle the resources of coal and steel
in both nations. This was the birth of the
European Coal and Steel Community. This
treaty signed in Paris in 1951 sowed the
seeds of the European Community. Perhaps
the biggest impetus to the establishment of
an integrated union was the Treaty of Rome
signed in 1957 by Belgium, France, Italy,
Luxembourg, the Netherlands and West
Germany, which laid the foundation of the
current European Union. The treaty
proposed the creation of a common body
dealing with the creation of common
transport, agriculture and monetary
policies. A close partnership between the
enemies of yesterday was set in motion,
something which can hardly be said of for
the condition in South Asia. End of 1947,
the circulation of people as well as ideas
between the South Asian countries,
particularly India and Pakistan, stopped.
Stability in Europe was also aided by the
United States under the Marshall Plan, also
known as the European Recovery Program.
Under this, The United States channelled
over $13 billion to finance the economic
recovery of Europe and successfully restore
the confidence of the European people in
the economic future of their own countries
and of Europe as whole. This is a crucial
point as the sub-continent never had this
good fortune. At the time of the creation of
the common market, the US patronage
certainly made the difference for Europe
while in the case of South Asia, that role has
been ambivalent, to say the least.
Although the US had a vested interest in
European integration, the fact that the union
was built primarily by the efforts of the
various European leaders cannot be taken
for granted. Anything but the same can be
said as far as the leaders of the sub-
continent are concerned. Geographically,
all the states in the European Union are
placed in such a way that no single state can
dominate the other states, which enables
smooth geopolitics among the member
states. India is the biggest power in South
Asia in most aspects and thus many
member states of SAARC look at it with
suspicion and the relations are not of mutual
trust, making the working of SAARC weak
and difficult. Numerous disputes among
countries be it between India-Pakistan on
the Kashmir and Sachem issues,
Afghanistan-Pakistan on the Durand Line,
India-Bangladesh on the illegal migrations,
and Nepal-Bhutan over the repatriation of
Bhutanese refugees in Nepal. The constant
rise in military expenditures shows an
unhealthy environment for economic
development as well as for the peaceful
interstate relationships. Another factor in
favour of the EU is that almost all members
of the EU are Parliamentary Democracies,
having the multi-party system, free and
regular elections and strong market
economy, while all member states of the
SAARC except India are politically
instable states and weak market structures.
The increasing military modernization
among the SAARC member states indicates
well and truly the mistrust that breeds
among the nations, a factor deterring the
establishment of any common body that can
facilitate the smooth pathway towards
establishing a common currency for the
region. Even though all the factors, be it
political or economic, were in favour of the
European Union when it laid down the
foundation of a common currency, it took
nearly decades to establish the same, that
too after the work of bodies like the
European Central Bank and the European
Court of Auditors. Due to the animosity
among the South Asian countries, the
establishment of such institutions has been
a distant reality and if they are already in
place, they work in a far from desirable
manner due to ever continuing hostilities
among nations. A perfect example is the
cancellation of the SAARC summit in
2016, when India, Bhutan, Bangladesh and
Afghanistan boycotted the meeting in
Pakistan, blaming the latter for creating an
uneasy environment. Hence, the
establishment of a common currency in the
Indian sub-continent appears to be a far-
fetched possibility given the far from ideal
political scenario prevailing in the region.
Optimum Currency Area
An Optimum Currency Area (OCA) is a
geographical domain of several countries
which share a common currency and such a
currency would be the greatest economic
benefit. This theory, pioneered by
economists like Robert Mundell (1961),
McKinnon (1963) and Peter Kenen (1969),
is often used to determine whether a certain
region can become a monetary union or not.
Criteria for fulfilment of the theory include
(i) mobility of labour (ii) capital mobility
and price and wage flexibility (iii) risk
sharing (iv) similarity in business cycles
The primary case in point for OCA was the
adoption of Euro as the common parameter
for exchange and establishment of the
Eurozone. However, things have not
panned out in the best way possible over the
decades. Many of Eurozone countries are
deemed unstable (PIIGS), some have been
subject to various economic struggles the
latest being the Greek Debt Crisis and 2016
saw a discontented Britains exit from the
union.
Even though the European Union did fit the
set criteria of the theory perfectly and still
faces unprecedented turbulence, SAARC
nations fail to comply with set standards.
(i) Proponents may argue the cultural
similarities and potential liberalization of
labour migration policies will further serve
as a catalyst to economic integration and
enhance labour mobility. However, it
becomes imperative to throw light on the
rocky geo- political scenario (as discussed
above), distrust amongst nations and the
lopsided economic merit. India represents
over 80% of the regions output and
experiences the largest influx of labour,
both legal and illegal amongst all SAARC
nations. However, demand may not
correspond to supply in this sphere since
majority of such immigrants go
unemployed or work in low paying
unorganized sector. Lack of labour
regulatory authorities amongst nations as
well the potential burden on a single
country such a policy will be far from
favourable.
(ii) Openness in capital mobility and price
and wage flexibility are necessary to ensure
that the market forces of supply and
demand automatically distribute money and
goods to where they are needed. However,
energy sharing within the South Asian
region is limited, despite significant
potential and unmet demand. Intra-regional
trade accounts for only 5 percent of South
Asias total trade, compared to 25 percent
in its counterpart, ASEAN. Intra-regional
investment is smaller than 1 percent of the
overall investment. Finally, there is little
cooperation within the region on managing
shared natural resources and disaster risks
that threaten sustainable trade growth.
Apart from lack of mutual trust and volatile
political relations across the Southern
Asian region, limited transport
connectivity, onerous logistics and
regulatory impediments also add to a
plethora of hurdles in terms of capital flow.
 Table: Trend in Intra - Regional Group Trade
(Per cent)
Regional
1950 1960 1970 1980 1990 1995 2000
Group
1 2 3 4 5 6 7 8
MERCOSUR 6.1 7.6 9.4 9.7 11 19.2 19.9
NAFTA 35.5 30.4 36 33.2 37.2 42 46.8
ASEAN 2.8 12.7 22.4 15.9 17 21 22.7
ASEAN +3 16.1 21.9 25.8 29 26.8 34.9 33.7
GCC 4.6 3.9 8.1 7.5 6.2 5.5
SAARC 11.6 5 3.2 3.5 2.7 4.3 4.5
EU 25 47.9 51.8 61 61.8 67.4 66.4 67.2
Euro Zone 36.1 41.2 53.7 48.1 54.5 53.2 50.3
APEC 44.2 47 57.9 57.5 67.7 71.7 72.5
CIS 33.4 28.4 22.7
Source: Reserve Bank of India
(iii) A risk sharing policy would entail
requirement of a fiscal transfer mechanism
for members of the currency union which
faces economic problems due to the
geographical hurdles or due to lack of
development of those areas. Evidently, this
would come across as an unfavourable
clause to countries with surpluses as they
may not be willing to part with their
revenue to bail out other members.
Nonetheless, such a clause is imperative to
ensure healthy functioning of the common
currency zone. The European sovereign
debt crisis of 2009-2015 is considered
evidence of the failure of the European
Economic and Monetary Union (EMU) to
satisfy this criterion as original EMU policy
instituted a no-bail out clause which soon
became evident as unsustainable.
The situation is completely lopsided on a
closer analysis of the SAARC nations. The
European Union constituted of multiple
bigger players such as France, Germany,
United Kingdom (till 2016), Spain, Italy
etc. which experience little irregularities in
functioning and flourishing. Since most of
the SAARC member countries are small
open economies (except India), the regional
shocks have a significant impact on the
same, thereby increasing their dependency
and risk largely borne by India which is
responsible for over 80% output and
2008
9
earnings of the entire region. This makes
15.5 risk sharing a hollow term as the risk will
40
25.8
be largely borne by a single member to
34 counteract the unstable and closed nature of
4.8
other members in South Asian region.
66.7
49.3
(iv) The criteria of integrated business
65.5
cycles dictate a similar period for boom and
recession amongst the currency zone
members. This would facilitate the central
presiding bank to undertake measures to
promote growth during the recession and
curb inflation during the boom. If the cycles
were not aligned, effective engineering and
implementation of monetary policies would
be a herculean task. This allows the shared
central bank to promote growth in
downturns and to contain inflation in
booms. SAARC countries are mostly
smaller, closed economies with agriculture
as their chief industry and thus face
symmetric business cycles. Moreover,
external shocks between India and any of
the SAARC member country are
asymmetric. Also, India has a larger
domestic market and experiences major
trade policy changes (for example, trade
liberalization) and institutional reforms to
boost up trade with different other regions,
including EU (European Union), BRICS
(Brazil, Russia, India, China, and South
Africa), ASEAN (Association of Southeast
Asian Nations), BIMSTEC (Bay of Bengal
Initiative for Multi-Sectoral Technical and
Economic Cooperation), and North
America. These regions also show more
enthusiasm to India compared to any of
SAARC member countries. These
privileges may help India facing the
external global shocks in different ways.
Cost-Benefit comparison of proposed
Currency Zone
Economist Paul Krugman has postulated
the cost-benefit representation of this
criterion, wherein a country should join an
OCA if the benefits exceed costs. Benefits
associated with an OCA majorly consist of
trade benefits, removal of inflation bias and
increased macroeconomic stability. This
might sound appealing but entail huge costs
for establishments of a currency zone in the
South Asian region.
Massive administrative costs can be
anticipated as numerous organizations are
to be put in place to establish control and
regulation across the region. The European
Union which has enjoyed cordial relations
and comparative economic stability itself
constitutes of seven independent
institutions for mere governance (European
Council, Council of the European
Union, European Parliament, European
Commission, Court of Justice of the
European Union, European Central
Bank and European Court of Auditors;
wherein each body assumes a different role
for smooth functioning of the union). A
prudent estimate for SAARC would require
the establishment of all such bodies along
with others to ensure regulation and
protection of labour as the region is
notorious for lack of the same and a
separate body for fiscal monitoring parallel
to the European Monetary Union. One
cannot look at the plethora of policies and
structural changes which will be required to
ensure sustainability of such a policy and
2
Seigniorage is the difference between the value of
money and the cost to produce it in other words,
it's the economic cost of producing a currency
within a given economy or country. If the
seigniorage is positive, then the government will
even then, such costs are the mere tip of the
iceberg.
The formation of such a union will also lead
to loss of monetary autonomy, decreased
macroeconomic stability and loss of
seigniorage2. It is common knowledge that
a major chunk of the South Asian region is
in a developmental stage and these
economies are plagued with a multitude of
problems. Most economies have whooping
unemployment and illiteracy rates. The
World Bank, in 2011 estimated 23.6% of
Indian population, or about 276 million
people lived below $1.25 per day on
purchasing power parity India being the
richest out of all SAARC nations with
80.09% contributions to the entire regions
product. Thus, implementation of a
common currency would result in loss of
each country's ability to direct fiscal and
monetary policy interventions to stabilize
their economies as the monetary policies
will be governed by a central fiscal
authority which governs the entire region.
The economic realities of South Asia are
such that a common currency will in effect
mean the Indian Rupee (and Reserve Bank
of India will be the de facto South Asian
central bank). This is suggested by the fact
that Bhutan and Nepal already use Indian
rupee alongside their own currencies.
Currently, Indian GDP accounts for 80
percent of South Asian GDP on PPP basis.
It is inconceivable that Pakistan will join a
monetary union with India in the
foreseeable future such that a South Asian
monetary union can be established only by
excluding Pakistan. In this event, Indian
make an economic profit; a negative seigniorage
will result in an economic loss.
share of the proposed unions GDP will rise trade as a ratio of South Asias total foreign
above 90 percent. Each member country trade was only 4.8 percent when compared
will perhaps have some representation in with 25.8 percent for ASEAN member
the central bank, but their voice will be countries and about 67% for the European
mute since, unlike SAARC, decisions will Union.
be made by the weight of the economy
thus leading to macroeconomic instability
amongst smaller players. Table: Intra-regional Trade Share of South
Asias Total Trade
(Per cent)
Country 1985 1990 1995 2000 2004 2007
Intra-SAARC Trade
1 2 3 4 5 6 7
Afghanista
At present, intra-SAARC trade is quite low 11.4 14.5 11.1 29.7 35.3 43.1
n
Banglades
as compared with that of regional forums 4.7 6 12.8 7.9 10.5 9.4
h
such as European Union (EU) and Bhutan
Association of South East Asian Nations India 1.7 1.6 2.7 2.5 3 2.7
(ASEAN). Despite growing trade-GDP Maldives 12.5 12.7 14.3 22.2 19.8 12.2
ratio, the South Asian economies continued Nepal 34.3 11.9 14.8 22.3 47.2 60.5
to remain least open relative to other groups Pakistan 3.1 2.7 2.3 3.6 5 6.6
of emerging and developing economies. Sri Lanka 5.5 5.6 7.8 7.4 15.1 18.9

SAARC had a slow start but gained Source: Reserve Bank of India
momentum with the launch of SAARC
Thus, the growth of intra-regional trade has
Preferential Trading Agreement (SAPTA)
remained subdued due to considerations,
in the mid-1990s. Since the implementation
other than economic issues. The inception
of South Asian Free Trade Area (SAFTA)
of a common currency zone is driven by the
at the beginning of the new millennium,
theory of obtaining greater economic
despite the formation of regional grouping,
benefit by opening floodgates to flourish
trade flows within the SAARC region are
trade within an area where prospects of the
not much significant. This is perhaps on the
same are attractive. However, empirical
account of the disparities in the market size
analysis dictates that as no such
of SAARC economies, unlike other
flourishing trade exists between SAARC
regional groupings. For instance, Bhutan or
and the prospects of such trade in future are
Nepal cannot be the major export
also dim due to availability of favourable
destinations for India and Pakistan. Thus,
factors in other outlets in the region, one
one cannot expect beyond a modest
such being ASEAN.
potential in the intra-SAARC trade,
particularly of big SAARC countries with
small SAARC economies. Conclusion
Despite growing trade-GDP ratio, the South
After consideration of various parameters
Asian economies continued to remain least
establishment of a common currency zone
open relative to other groups of emerging
amongst SAARC regions might turn out to
and developing economies. Intra-regional
be the 21st century Pandoras Box.

The lack of political integration would
ensure the policy, if implemented, would
stand bereft of the basic structural support
needed to ensure its sustainability. Ties
between Pakistan and India as well as
Pakistan and Afghanistan raise the gravest
concerns. India and Bangladesh too have
been at loggerheads throughout various
patches in history.
Lack of fulfilment of the OCA criteria set
by chief economists might also serve as a
huge hindrance. The constant economic
disturbances in Eurozone has economists
rethinking the applicability of a common
currency even after fulfilment of theoretical
criteria. Moreover, with majority of South
Asian nations still paving through initial
developmental stages lack autonomy with a
The Long Straddle Options Trading Strategy
This paper examines the use of Long
Straddle as a strategy to hedge risk and
yield maximum return as opposed to
trading in pure options and trading in
equity stocks. Our analysis is based on the
Long Straddle created for three different
well established companies which are
Mindtree, TCS and Infosys. The purpose of
the paper is to bring out the benefits of
using the strategy and comparing it with
pure options trading and equity stock
trading. The long straddle is a way to profit
from increased volatility or sharp move in
the underlying stocks price, so as to
3Jacob George is a student of B.Com. Finance and
Accountancy at Christ University, Bangalore. He
single central monetary authority, drastic
changes in monetary policy, as well as
changes in exchange rate policy, might de-
rail concerned nations from the path of
economic reconstruction due to lack of
targeted measures.
The costs or investment required in tangible
as well as intangible terms severely
outweighs negligible benefits which may
accrue, more so in the case of India which
single handedly has over 80% contribution
to output.
The lackluster state of intra-regional trade
also defeats the tactical purpose of
implementing said policy as the greatest
anticipated trade benefit is a highly
doubtful result. Other alternatives, the chief
being ASEAN, present a better atmosphere
and opportunity for trade.
By Jacob George3
maximize the return of the investor. The
research paper is done solely for the
purpose of investments in options.
Keywords: Long Straddle, Options, Equity
Stocks, Volatility
Introduction
Options allow investors and traders to make
money in ways that are not possible simply
by buying or selling the underlying
security. If we only trade the underlying
security, we either enter a Long position
can be reached at jacobgeorge08@gmail.com for
comments, queries or suggestions.
(buy) and hope to profit from and advance
in price, or we enter a short position (sell)
and hope to profit from a decline in price.
Through the use of options, we can craft a
position to take advantage of virtually any
market outlook or opinion with the help of
a strategy known as the Long Straddle. For
aggressive investors who expect short-term
volatility yet have no bias up or down (i.e.
a neutral bias), the long straddle is an
excellent strategy. This position involves
buying both a put and a call with the same
strike price, expiration, and underlying. The
potential loss is limited to the initial
investment (i.e. the premium paid). The
potential profit is unlimited as the stock
moves up or down. The objective of using
long straddle is to take advantage of a
movement in either direction, a soaring or
plummeting value of the stock/index. If the
price of the stock/index increases, the call
is exercised while the put expires worthless
and if the price of the stock/index
decreases, the put is exercised, the call
expires worthless.
In our research, we decided to look at the
United States Presidential Elections
between Donald trump and Hilary Clinton.
These are two different candidates with
vastly different ideals especially when it
comes to their Tech & IT Policies.
While Hilary Clinton came out with plans
to defend Net Neutrality and the freedom of
the internet, one of Donald Trumps major
policy was to limit the usage of H-1B visas
which are used to bring in highly skilled
workers in technical fields to the country.
Therefore, majority believed that Silicon
Valley would indeed vote for Clinton and in
the unlikely situation that Trumps wins, it
would have a negative impact on the stock
market especially in the IT sector.
Review of Literature
(Bo czar, Thomas and Fichtenbaum,
Mark, Stock Concentration Risk
Management Strategies, TRUSTS &
ESTATES, June 1996.)
Stocks, bonds, and alternative investments
such as venture and equity capital generally
are understood and utilized by portfolio
managers and others who manage the assets
of wealthy investors. Conversely, options
and other derivatives generally are not well
understood and are underutilized by most
advisors. Options and other financial
derivatives can be utilized by the astute
manager not only as a tool to better manage
the investment risks potentially impacting
portfolio returns, but to craft truly value-
added investment strategies customized to
meet investors' needs.
Research Design
Scope of Study
Looking at pre-election polls, with almost
everyone predicting a Clinton victory,
investments were made into multiple IT
companies both equity as well as options.
Equity stock and options were entered with
a long position as well as a long straddle
which involved buying a call and put option
with the same strike price at the same
expiry date.
IT Companies
Infosys
TCS
Mindtree
All investments were made on the 24th of
August 2016, with the options set to expire
on the 24th of November.
Statement of Problem
To make an investment during the period of
US elections and to try and make a profit
over the volatility in the markets using a
long straddle options trading strategy in the
IT industry in the Indian markets
Equity stock prices for the
companies were obtained from
https://www.nseindia.com/
Pre-election data was obtained
from
http://www.electionprojection.com/
presidential-elections.php
Option prices were obtained from
https://www.nseindia.com/products
/content/derivatives/equities/histori
cal_fo.htm

Objective of Study Limitations of Study

To compare investments made using equity
stock, pure options and the long straddle
options trading strategy.
Source of Data
We have used secondary data in this
research paper.
The Long Straddle Options Trading
Strategy is only applicable during
periods of volatility in the markets.
If used during periods of stability,
profits are very hard to attain.

Closing Closing
Company
Index Price as on Price as on Gain/Loss % Change
Name
24/8/16 24/11/16
NSE Mindtree 568.6 462.85 -105.75 -18.598
NSE TCS 2572.05 2188.45 -383.6 -14.914
NSE Infosys 1057.4 930.3 -127.1 -12.02

Method of Analysis Gain/Loss = Closing Price as on 24/11/16 -

Closing Price as on 24/8/16
Equity Stock
% Change = Loss / Closing Price as on
Equity stock of the following companies 24/8/16
were purchased on August 24, 2016 and
was purchased with the expectation of a
Clinton Presidency.
Mindtree

TCS

Infosys
 As we can see from the above table and period of 3 months between 24th August
graphs, all companies fell heavily over the 2016 to 24th November 2016.

Call Options

Closing Price Closing Price Strike %

Company Expiry on 24/8/11 on 24/11/16 Price LTP Gain/Loss Gain/Loss
TCS 24-11-16 2572.05 2188.45 2600 121.15 -121.15 -100
Mindtree 25-11-16 568.6 462.85 600 34.45 -34.45 -100
Infosys 26-11-16 1057.4 930.3 1100 34.8 -34.8 -100

Similarly, as with equity stock, Call Gain/Loss = Closing Price on 24/11/16 -

Options were purchased on the 24th of
August and were set to expire on the 24th of
November. This was also done with the
mindset we would have a Clinton President
along with her Tech Policies coming into
play.
The strike of call options was set at a lower
value so that the options could be bought at
that lower value if the stock prices did
indeed go up after a Clinton win.
However, as we can see from the above
table, these calls were not of any value since
prices of stocks went below the strike price.
Hence losses were resulted for all options,
but they were only limited to a maximum
loss of the option premium unlike in equity
stock.
LTP (Last Traded Price of Option) Strike
Price
Or LTP
(whichever is lower)
Last Traded Price is also the premium of the
options and is the maximum loss that one
can suffer
% Change = Gain Loss / Last Traded Price
Long Straddle Trading Strategy
In this options trading strategy, a call and a
put option are put at the same strike price
and same expiry date. Thus, in periods of
high volatility, no matter which way the
markets move a profitable position can be
attained since either the call or the put will
turn a profit. The maximum loss in this
trading strategy is the sum of both the
premiums i.e. the call premium and the put
premium.
 Mindtree Ltd.
% Stock Strike Premium Premium CE PE
Change Price Price on Call on Put Gain/Loss Gain/Loss Net
-20 480.00 600.00 34.45 55.05 -34.45 64.95 30.50
-19 486.00 600.00 34.45 55.05 -34.45 58.95 24.50
-18 492.00 600.00 34.45 55.05 -34.45 52.95 18.50
-17 498.00 600.00 34.45 55.05 -34.45 46.95 12.50
-16 504.00 600.00 34.45 55.05 -34.45 40.95 6.50
-15 510.00 600.00 34.45 55.05 -34.45 34.95 0.50
-14 516.00 600.00 34.45 55.05 -34.45 28.95 -5.50
-13 522.00 600.00 34.45 55.05 -34.45 22.95 -11.50
-12 528.00 600.00 34.45 55.05 -34.45 16.95 -17.50
-11 534.00 600.00 34.45 55.05 -34.45 10.95 -23.50
-10 540.00 600.00 34.45 55.05 -34.45 4.95 -29.50
-9 546.00 600.00 34.45 55.05 -34.45 -1.05 -35.50
-8 552.00 600.00 34.45 55.05 -34.45 -7.05 -41.50
-7 558.00 600.00 34.45 55.05 -34.45 -13.05 -47.50
-6 564.00 600.00 34.45 55.05 -34.45 -19.05 -53.50
-5 570.00 600.00 34.45 55.05 -34.45 -25.05 -59.50
-4 576.00 600.00 34.45 55.05 -34.45 -31.05 -65.50
-3 582.00 600.00 34.45 55.05 -34.45 -37.05 -71.50
-2 588.00 600.00 34.45 55.05 -34.45 -43.05 -77.50
-1 594.00 600.00 34.45 55.05 -34.45 -49.05 -83.50
0 600.00 600.00 34.45 55.05 -34.45 -55.05 -89.50
1 606.00 600.00 34.45 55.05 -28.45 -55.05 -83.50
2 612.00 600.00 34.45 55.05 -22.45 -55.05 -77.50
3 618.00 600.00 34.45 55.05 -16.45 -55.05 -71.50
4 624.00 600.00 34.45 55.05 -10.45 -55.05 -65.50
5 630.00 600.00 34.45 55.05 -4.45 -55.05 -59.50
6 636.00 600.00 34.45 55.05 1.55 -55.05 -53.50
7 642.00 600.00 34.45 55.05 7.55 -55.05 -47.50
8 648.00 600.00 34.45 55.05 13.55 -55.05 -41.50
9 654.00 600.00 34.45 55.05 19.55 -55.05 -35.50
10 660.00 600.00 34.45 55.05 25.55 -55.05 -29.50
11 666.00 600.00 34.45 55.05 31.55 -55.05 -23.50
12 672.00 600.00 34.45 55.05 37.55 -55.05 -17.50
13 678.00 600.00 34.45 55.05 43.55 -55.05 -11.50
14 684.00 600.00 34.45 55.05 49.55 -55.05 -5.50
15 690.00 600.00 34.45 55.05 55.55 -55.05 0.50
16 696.00 600.00 34.45 55.05 61.55 -55.05 6.50
17 702.00 600.00 34.45 55.05 67.55 -55.05 12.50
18 708.00 600.00 34.45 55.05 73.55 -55.05 18.50
19 714.00 600.00 34.45 55.05 79.55 -55.05 24.50
20 720.00 600.00 34.45 55.05 85.55 -55.05 30.50

Net
Net

40.00

20.00

0.00

-20.00

-40.00

-60.00

-80.00

-100.00

For the above company Mindtree, the with the help of the long straddle, we were
equity stock fell by 18.6 % and the call able to achieve a profitable position.
option resulted in a loss of 34.45, however

Stock Strike Premium Premium CE PE %

Price Price on Call on Put Gain/Loss Gain/Loss Net Gain/Loss
462.85 600 34.45 55.05 -34.45 82.1 47.65 53.24

CE Gain/Loss = Closing Price on 24/11/16
- LTP (Last Traded Price of Option)
Strike Price
Or LTP
(whichever is lower when considering loss)
Net = CE (Call European) Gain/Loss PE
(Put European) Gain/Loss

Or LTP % Gain/ Loss = Net/ (CE Gain/Loss+ PE

(whichever is lower when considering loss) Gain/Loss)

PE Gain/Loss = Strike Price - Closing Price Thus, a profit of 53.24% was achieved
on 24/11/16 - LTP when using a long straddle with risk being
minimized to premium amounts as well.
 Tata Consultancy Services Ltd.
% Stock Strike Premium Premium CE PE
Change Price Price on Call on Put Gain/Loss Gain/Loss Net
-20 2080.00 2600.00 121.15 152.05 -121.15 367.95 246.80
-19 2106.00 2600.00 121.15 152.05 -121.15 341.95 220.80
-18 2132.00 2600.00 121.15 152.05 -121.15 315.95 194.80
-17 2158.00 2600.00 121.15 152.05 -121.15 289.95 168.80
-16 2184.00 2600.00 121.15 152.05 -121.15 263.95 142.80
-15 2210.00 2600.00 121.15 152.05 -121.15 237.95 116.80
-14 2236.00 2600.00 121.15 152.05 -121.15 211.95 90.80
-13 2262.00 2600.00 121.15 152.05 -121.15 185.95 64.80
-12 2288.00 2600.00 121.15 152.05 -121.15 159.95 38.80
-11 2314.00 2600.00 121.15 152.05 -121.15 133.95 12.80
-10 2340.00 2600.00 121.15 152.05 -121.15 107.95 -13.20
-9 2366.00 2600.00 121.15 152.05 -121.15 81.95 -39.20
-8 2392.00 2600.00 121.15 152.05 -121.15 55.95 -65.20
-7 2418.00 2600.00 121.15 152.05 -121.15 29.95 -91.20
-6 2444.00 2600.00 121.15 152.05 -121.15 3.95 -117.20
-5 2470.00 2600.00 121.15 152.05 -121.15 -22.05 -143.20
-4 2496.00 2600.00 121.15 152.05 -121.15 -48.05 -169.20
-3 2522.00 2600.00 121.15 152.05 -121.15 -74.05 -195.20
-2 2548.00 2600.00 121.15 152.05 -121.15 -100.05 -221.20
-1 2574.00 2600.00 121.15 152.05 -121.15 -126.05 -247.20
0 2600.00 2600.00 121.15 152.05 -121.15 -152.05 -273.20
1 2626.00 2600.00 121.15 152.05 -95.15 -152.05 -247.20
2 2652.00 2600.00 121.15 152.05 -69.15 -152.05 -221.20
3 2678.00 2600.00 121.15 152.05 -43.15 -152.05 -195.20
4 2704.00 2600.00 121.15 152.05 -17.15 -152.05 -169.20
5 2730.00 2600.00 121.15 152.05 8.85 -152.05 -143.20
6 2756.00 2600.00 121.15 152.05 34.85 -152.05 -117.20
7 2782.00 2600.00 121.15 152.05 60.85 -152.05 -91.20
8 2808.00 2600.00 121.15 152.05 86.85 -152.05 -65.20
9 2834.00 2600.00 121.15 152.05 112.85 -152.05 -39.20
10 2860.00 2600.00 121.15 152.05 138.85 -152.05 -13.20
11 2886.00 2600.00 121.15 152.05 164.85 -152.05 12.80
12 2912.00 2600.00 121.15 152.05 190.85 -152.05 38.80
13 2938.00 2600.00 121.15 152.05 216.85 -152.05 64.80
14 2964.00 2600.00 121.15 152.05 242.85 -152.05 90.80
15 2990.00 2600.00 121.15 152.05 268.85 -152.05 116.80
16 3016.00 2600.00 121.15 152.05 294.85 -152.05 142.80
17 3042.00 2600.00 121.15 152.05 320.85 -152.05 168.80
18 3068.00 2600.00 121.15 152.05 346.85 -152.05 194.80
19 3094.00 2600.00 121.15 152.05 372.85 -152.05 220.80
20 3120.00 2600.00 121.15 152.05 398.85 -152.05 246.80

Net
Net

300.00

200.00

100.00

0.00

-100.00

-200.00

-300.00

For the above company TCS, the equity
stock fell by 14.91 % and the call option
resulted in a loss of -121.15, however with
the help of the long straddle, we were able
to achieve a profitable position.
CE Gain/Loss = Closing Price on 24/11/16
- LTP (Last Traded Price of Option)
Strike Price
PE Gain/Loss = Strike Price - Closing Price
on 24/11/16 - LTP
Or LTP
(whichever is lower when considering loss)
Net = CE (Call European) Gain/Loss PE
(Put European) Gain/Loss
% Gain/ Loss = Net/ (CE Gain/Loss+ PE
Gain/Loss)

Or LTP Thus, a profit of 50.64% was achieved

(whichever is lower when considering loss) when using a long straddle with risk being
minimized to premium amounts as well.

Stock Strike Premium Premium CE PE %

Price Price on Call on Put Gain/Loss Gain/Loss Net Gain/Loss
2188.45 2600 121.15 152.05 -121.15 259.95 138.35 50.64
 Infosys Ltd.
% Stock Strike Premium Premium CE PE
Change Price Price on Call on Put Gain/Loss Gain/Loss Net
-20 880.00 1100.00 34.8 95.85 -34.80 124.15 89.35
-19 891.00 1100.00 34.8 95.85 -34.80 113.15 78.35
-18 902.00 1100.00 34.8 95.85 -34.80 102.15 67.35
-17 913.00 1100.00 34.8 95.85 -34.80 91.15 56.35
-16 924.00 1100.00 34.8 95.85 -34.80 80.15 45.35
-15 935.00 1100.00 34.8 95.85 -34.80 69.15 34.35
-14 946.00 1100.00 34.8 95.85 -34.80 58.15 23.35
-13 957.00 1100.00 34.8 95.85 -34.80 47.15 12.35
-12 968.00 1100.00 34.8 95.85 -34.80 36.15 1.35
-11 979.00 1100.00 34.8 95.85 -34.80 25.15 -9.65
-10 990.00 1100.00 34.8 95.85 -34.80 14.15 -20.65
-9 1001.00 1100.00 34.8 95.85 -34.80 3.15 -31.65
-8 1012.00 1100.00 34.8 95.85 -34.80 -7.85 -42.65
-7 1023.00 1100.00 34.8 95.85 -34.80 -18.85 -53.65
-6 1034.00 1100.00 34.8 95.85 -34.80 -29.85 -64.65
-5 1045.00 1100.00 34.8 95.85 -34.80 -40.85 -75.65
-4 1056.00 1100.00 34.8 95.85 -34.80 -51.85 -86.65
-3 1067.00 1100.00 34.8 95.85 -34.80 -62.85 -97.65
-2 1078.00 1100.00 34.8 95.85 -34.80 -73.85 -108.65
-1 1089.00 1100.00 34.8 95.85 -34.80 -84.85 -119.65
0 1100.00 1100.00 34.8 95.85 -34.80 -95.85 -130.65
1 1111.00 1100.00 34.8 95.85 -23.80 -95.85 -119.65
2 1122.00 1100.00 34.8 95.85 -12.80 -95.85 -108.65
3 1133.00 1100.00 34.8 95.85 -1.80 -95.85 -97.65
4 1144.00 1100.00 34.8 95.85 9.20 -95.85 -86.65
5 1155.00 1100.00 34.8 95.85 20.20 -95.85 -75.65
6 1166.00 1100.00 34.8 95.85 31.20 -95.85 -64.65
7 1177.00 1100.00 34.8 95.85 42.20 -95.85 -53.65
8 1188.00 1100.00 34.8 95.85 53.20 -95.85 -42.65
9 1199.00 1100.00 34.8 95.85 64.20 -95.85 -31.65
10 1210.00 1100.00 34.8 95.85 75.20 -95.85 -20.65
11 1221.00 1100.00 34.8 95.85 86.20 -95.85 -9.65
12 1232.00 1100.00 34.8 95.85 97.20 -95.85 1.35
13 1243.00 1100.00 34.8 95.85 108.20 -95.85 12.35
14 1254.00 1100.00 34.8 95.85 119.20 -95.85 23.35
15 1265.00 1100.00 34.8 95.85 130.20 -95.85 34.35
16 1276.00 1100.00 34.8 95.85 141.20 -95.85 45.35
17 1287.00 1100.00 34.8 95.85 152.20 -95.85 56.35
18 1298.00 1100.00 34.8 95.85 163.20 -95.85 67.35
19 1309.00 1100.00 34.8 95.85 174.20 -95.85 78.35
20 1320.00 1100.00 34.8 95.85 185.20 -95.85 89.35

Net
Net

150.00

100.00

50.00

0.00

-50.00

-100.00

-150.00

For the above company, Infosys, the equity help of the long straddle, we were able to
stock fell by 12.02 % and the call option achieve a profitable position.
resulted in a loss of -34.8, however with the

Stock Strike Premium Premium CE PE %

Price Price on Call on Put Gain/Loss Gain/Loss Net Gain/Loss
930.3 1100 34.8 95.85 -34.8 73.85 39.05 29.88

CE Gain/Loss = Closing Price on 24/11/16 % Gain/ Loss = Net/ (CE Gain/Loss+ PE

- LTP (Last Traded Price of Option) Gain/Loss)
Strike Price
Thus, a profit of 29.88% was achieved
Or LTP when using a long straddle with risk being
(whichever is lower when considering loss) minimized to premium amounts as well.

PE Gain/Loss = Strike Price - Closing Price

on 24/11/16 - LTP
Findings and Conclusion
Or LTP
(whichever is lower when considering loss) Looking at the above data and comparing
all three investment strategies, we can
Net = CE (Call European) Gain/Loss PE clearly see that the long straddle is the one
(Put European) Gain/Loss that pays off the most. Both equity
investments as well as the pure options
performed poorly and lost money.
The long straddle however was able to
make huge profit margins even crossing
50% of the initial investment due to the
volatile nature of the markets during the
time period from 24th August to 24th
November.
However, we can clearly see from the long
straddle table that if there had not been
fluctuations in the market price we would
not be able to make such profit.
Additional Review of Literature
1. A more modest approach to naked
straddles
Ross, Robb. Futures40.1 (Jan
2011): 40-42.
The scantily clad straddle is a premium-
capturing program that involves selling the
straddle and then placing orders in the
underlying commodity to provide a level of
coverage should the underlying
significantly in one direction. Many trading
platforms let you sell the straddle instead of
executing each leg of the trade separately.
By selling the straddle, you collect the
option premium. You are thereby naked the
straddle. In after-hours trading, the
commodity might move against the option
owner to where it's not profitable to
exercise. When the price is close to the
strike, it is best to exit the position. It will
cost you a little, but will provide some
peace of mind.
2. Option Trading and the Relation
between Price and Earnings: A
Cross-Sectional Analysis
Li-Chin Jennifer Ho
The Accounting Review
Vol. 68, No. 2 (Apr., 1993), pp.
368-384
3. Production, Hedging, and
Speculative Decisions with Options
and Futures Markets
Harvey Lapan, Giancarlo Moschini and
Steven D. Hanson
American Journal of Agricultural
Economics
Vol. 73, No. 1 (Feb. 1991), pp. 66-74
This paper analyses production, hedging,
and speculative decisions when both
futures and options can be used in an
expected utility model of price and basis
uncertainty. When futures and option prices
are unbiased, optimal hedging requires only
futures (options are redundant). Options are
used together with futures as speculative
tools when market prices are perceived as
biased. Straddles are used to speculate on
beliefs about price volatility and to hedge
the futures position used to speculate on
beliefs about the expected value of the
futures price. Mean-variance analysis in
general is not consistent with expected
utility when options are allowed.
 Demonetization- The biggest salvation or the
biggest mistake?
From demonetization to the new rhetoric- cashless economy
This paper investigates the impact of
demonetisation on the Indian Economy
using statistics, game theoretic analysis
and behavioural economics- studying the
authenticity of this stated tool in
accomplishing its said goals.
Introduction
November 8, 2016 has been one of the most
important dates in the history of India, the
day when the prime minister of the country
announced the demonetization of 500 and
1000 rupee notes, targeting black money,
corruption, terrorism and counterfeit
currency in circulation, all at once with this
move. Depending on ones political
leanings and personal financial situation,
people have perceived the move in infinite
ways, as an economic disaster, as a
masterstroke in the war against a few of the
biggest problems
crippling the Indian economy, or as a
surgical strike against the black economy.
It is been several months past the
announcement and we are certainly in the
position to analyse the step with the tools
and theories in economics.
4Kirti Rao and Parul Arora are third year students of Economics at Shri Ram College of Commerce, University
of Delhi. They can be reached at krkirtirao@gmail.com for comments, queries and suggestions.
By Kirti Rao and Parul Arora4
The paper has four sections:
The first section analyses the impact
of demonetization on its stated aims
as on November 8, 2016.
The second section comments on
the feasibility aspect of the new
rhetoric of a cashless economy in
the current scenario.
The third section talks about the
sustainability of a cashless
economy using game theory.
Finally, we see what behavioural
economics has to say about it.
Section I
In this section, we are going to prove that
demonetisation did not attain some of its
said aims, namely black money and
corruption. This section comprises mainly
of literature review and some of our own
inputs. Later, we see how the entire rhetoric
was changed to moving towards a cashless
economy.
Black Money:
1) Black money is a flow and not a
stock. There is nothing with this
move which would make sure that
theres no further generation of
black money.
2) There are tax-evading businessmen
approaching tax-paying
 businessmen to help them change
their black money, money which is
not accounted for into white money.
(Prof. Prabhat Patnaik)
3) Professor Prabhat Patnaik quotes
Marx in his analysis of
demonetisation, The miser
believes that you become rich by
hoarding money, while the
capitalist rightly believes that you
become rich by actually using the
money, throwing it into
circulation. Black money holders
are not misers, they are capitalists.
They are trying to expand their
businesses very much the same way
normal businesses try to expand.
So, they are forever throwing their
money back into circulation. The
amount they will be holding at any
point in time will only be a fraction
of their total transactions.
4) Was it a good policy badly
implemented or a bad policy badly
implemented? has been the most
important question lately, among
academicians and commoners alike.
In the next calculation, we show
that even if the policy was perfectly
implemented without any kind of
loopholes, wherein there are no new
Schumpeterian innovations and no
businesses emerging around
changing old currency notes into
new ones, rules dont change on an
hourly basis, no queue dodging, no
informal market for Q-labour, no
cash rationings, no hoarding of Rs.
100 notes, high note replacement
speed, ATMs were not cash
deficient, no transferring of cash
into the dormant accounts and the
accounts of the poor, no aids
through approaches and relations
with bank managers, no backdating
of bills, all in all the best case
scenario, the policy could not have
destroyed more than 5% of the
black wealth, which supports the
fact that it was certainly not the
biggest salvation.
Calculation and Methodology:
Cash GDP ratio is 12%. Lets take it to be
10% for simplicity of calculations. Later we
will show that the assumptions do not
change our conclusion.
Black income as % of GDP is 20%
Let us assume that half of the black income
is saved. So, 50% of black income is saved
which means 10% of GDP is the saved part
of black income and this gives rise to black
wealth (the rest half of the black income is
consumed in the same period).
Let us analyse the black wealth generation
over a period of 4 years. Taking rate of
growth of GDP to be 10%:
Year GDP Black Black
income wealth
1 100 20 10
2 110 22 11
3 121 24 12
4 133 28 14
By the fourth year, there is 47 units of black
wealth in the economy. Now, say we
undertake demonetisation in year four.
Cash in year 4= 10% of 133= 13.3 units
Black income in year 4= 20% of 13.3= 2.66
units
See that 2.66 units out of 47 units of black
wealth has been destroyed by this
demonetisation in year 4.
Conclusion: This means that even if we had
hit the exact target, the target was only 5%
of the projected aim of destroying the black
economy.
Countering the counter arguments
1. An argument might be that 5% is still
better than nothing, but at what cost?
The policy action certainly is not worth the
decrease in growth however short lived,
especially in the informal sector that
accounts for 58% of the GDP and employs
around 90% of the total workforce.
Significant volumes of genuine businesses
in small towns and cities revolving around
cash have all come to a standstill due to the
cash crunch.
2. Setting upper limit up to 3 lakhs on cash
transactions and making stricter penalties
post demonetization could have equally
well been imposed without taking this step
and the results would not have differed
much. Moreover, making laws and being
able to trace the defaulters are two
diametrically opposite things.
3. Was not demonetisation an easy escape
for the tax evaders when the government
targeted black cash, given that they have
already converted their money into assets
which are far from the reach of tax
authorities? How effective Benami law and
other enactments are is yet to be seen but
that did not require demonetisation.
Validity of the assumptions
1) We analysed over a period of 4
years. If we increase the time-period
of our analysis say to 10 years or so,
the fraction of black wealth
destroyed would be even smaller.
2) If we take the cash GDP ratio to be
12% and recalculate, we get similar
results.
3) Taking precise value of GDP
growth rate, also does not change
the results.
Corruption:
Corruption can equally well happen in kind,
so cash or no cash would have minimal
impact on that. Demonetisation will not
prohibit people from undertaking corrupt
activities unless the tendencies and
opportunities are rooted out. Corruption
will continue with resultant assets merely
changing their form and destination.
We have thus countered and established
that demonetization has had almost no
positive impact on either of the stated aims.
Another motive of the government behind
demonetisation which was brought into the
picture twenty days after the note ban
announcement was to march towards a
cashless economy.
Section II
Feasibility of Cashless economy: how
realistic is it given the current scenario?
Before we go on with our analysis of the
feasibility of going Cashless (or tending
towards a less cash economy), we will look
into the current scenario prevalent in India
relating to infrastructure and financial
inclusion.
 Indicators
Total population
Facebook users
Facebook users availing security options
literate population
Smartphone users
number of bank accounts (savings)
number of credit cards
number of debit cards
POS terminal penetration
percentage of debit card transactions done to
withdraw cash
wireless teledensity(Rural)
wireless teledensity(Urban)
percentage of mobile connections that are data
enabled
(The above data pertains to year
2015/2016 and are close estimates drawn
from many sources)
Low Financial Inclusion: Given the
enormous population of 1.3 Billion with a
GDP of $2.30 trillion (nominal; 2016) and
the number of smart phone users being as
low as 292 million (2016), going cashless is
not an easy task for a big democracy like
India. Moreover, total number of deposit
accounts (includes term deposits) is 1,440
million. Savings bank accounts in 2015 was
1,170 million which imply low financial
inclusion. With this, Cashless economy
seems to be a distant dream.
ATM Transactions For Cash
Withdrawals: Cards are used to make three
type of transactions
o To withdraw cash from ATMs
o To make payments online
o Swipe these at point of sale
terminals in merchant
establishments.
As evident from the data provided above, it
is seen that currently 92% of the
Data transactions using a card are done to
1.3 billion
142 million withdraw cash. This implies that even those
41.6 million
who possess cards, prefer to transact with
74.04%
cash. It makes us question the grim reality-
292 million Is India moving towards a cashless
1170 million economy?
25.9 million Lack of Infrastructure: The point of sales
697.2 terminals are very few, given the size of
million
1.44 million
India. Moreover, of the 1.44 Pops terminals
(data as provided by RBI), SBI, Axis bank,
92%
HDFC Bank, ICICI Bank and Corporation
50.72%
148% bank account for 1.16 Million. All these
30% commercial banks (except SBI) are
predominantly urban and there is no sign
of penetration of PoS machines in the rural
areas. This shows that there are structural
constraints which cannot be solved by
demonetisation alone.
Low Literacy Rate: The literacy rate across
India is still not good enough to ensure that
an individual of the country understands the
mechanism to use the cashless modes and
apps comfortably. Moreover, there is going
to be a language compatibility with going
cashless. With cash, it is more or less like a
visual description for illiterate and semi-
literate people.
Rural-Urban Imbalance: Given the huge
difference in wireless tele-density (no. of
wireless telephone connections for every
100 individuals living in an area) in rural
and urban areas, we cannot picture the
rural areas finding their path towards a
cashless destination riding the vehicle of
demonetisation.
Transaction Failures: Right after
demonetisation took place, we have
witnessed cases wherein the payment
gateways were not in the position to
handle the load of such enormous
transactions and many transactions failed.
The network capacity is limited to an
urbanised India which again points to the
unrealistic scenario of a cash-less society.
Threat to Security: Once we move towards
a cashless society, there comes an increased
risk of cybercrimes. Online payments are
complex for people who lack awareness to
judge the thin line between genuine and
non-genuine payment mechanisms. The
risks of cybercrimes increase tremendously
as we move towards a cash-less society
with hackers automatically incentivised to
upgrade their techniques faster than our
upgradation of security encryptions.
- We have noticed it through statistics
that the percentage of Facebook
users might be high in India but the
users availing security features are
extremely low. It is okay to be not
availing security features of a social
networking site, but such
carelessness has a huge price when
it comes to monetary transactions.
- Lack of awareness and carelessness
on our part due to pressures created
by demonetisation opens doors to
all kinds of malicious activities by
hackers. Hackers nowadays are
devising ways to obtain OTPs
which are stated to be the strongest
security feature lately.
- A global study by UN finds that
digital theft affects between 1%
and 17% of the online population
as against physical crime rates
which are below 5%. And as the
digital frontier continues to be
promoted, the threats faced are only
likely to grow.
- Cybercrimes are hard to fight.
There is a higher possibility that the
crime goes unreported because of
lack of awareness of the crime.
Stealing a minimal amount at once
might not make you suspicious of
something wrong unless the
security features are up to date and
you are aware about it all.
- Globally, laws restricting digital
crime vary. As much as 70% of
cybercrime crosses national
borders, which can make solving
cybercrimes a problem that has to
be tackled through international
cooperation and with the UN
reporting that a third to half of all
nations have insufficient legal
framework to criminalize
extraterritorial cybercrimes, it can
be difficult for law enforcement to
bring these criminals to justice.
(This is contradictory to the
common belief that online theft has
more likelihood of being traced
since it leaves footprints.)
Thus, we conclude that given the current
scenario and structural constraints, sudden
demonetisation without developing the
supporting infrastructure cannot pave the
path towards a cashless India. It can at most
be an external push towards it but is
definitely not the igniting factor to light
up the goal of a cashless economy that
makes India evolve out like Sweden.
Benefit to the Government if the economy
goes cashless:
Lets denote the benefit that will accrue to
the government if the economy goes
cashless by a for the rest of the paper.
Factors on which the value of a will
depend are:
 Saving the high cost of printing,
transporting and safeguarding
currency notes.
The resulting higher level of
transparency and accountability for
one and all.
Means to track data of all kinds of
economic activities. Better
estimates of variables like velocity
of money etc. would mean the
government policies will have
strong grounds to base themselves
upon.
Cashless transactions always leave
some other kind of footprint, hence
it will help curb the menace of black
money. Tax base would be
broadened.
Corruptions, fake currency etc. will
also be majorly hit.
Costs of going Cashless:
Lets denote the transaction cost of using
cashless means by b for the rest of the
paper.
We analyse the costs to individual in the
society as he chooses to switch to cashless
modes.
There are merchant costs like the
cost of installation of internet
connection, PoS terminal (if
engaged in selling) etc. On credit
cards, merchants are charged a
merchant discount rate (MDR), an
inter-bank exchange fee, of 2.5-
1.7% per transaction. On debit
cards, they need to pay 0.75% per
transaction below Rs 2000 and
1%for transactions above Rs 2,000.
For UPI, merchants are charged
0.75% per transaction plus other
costs. The merchants can easily
shift this burden to their customers
by luring them to pay cash and offer
discounts in return.
Not only the merchants, even other
people are charged over and above
the real price of the transaction
when they use plastic money or
other online apps.
India is not yet a free Wi-Fi zone
even in Urban hubs or the Silicon
city because we are still in the
intermediate stage of
digitalisation. Therefore, incurring
cost in terms of paying USSD
charges and availing data services is
obvious.
Opportunity cost- When apps like
paytm are used for transactions,
they do not pay any interest on the
money held with these apps. As a
result, there is always some
opportunity cost (Interest foregone
which could have otherwise been
earned when money would have
kept in savings back account)
associated to it. In fact, sometimes
there are also overhead charges on
transfers through such apps.
Now we analyse the apps and schemes
introduced by Government to promote
cashless transactions.
o The BHIM app- It is Aadhar based
mobile payment application which
allows people to make payments
from their account directly. Even
though initially transaction costs
are zero, the government cant
sustain it forever. It is based on a
feedback effect, only if people
increase this apps use, then
 economies of scale will allow
government to sustain zero
transactions cost.
o Providing other incentives like the
Lucky Grahak Yojana for
consumers and Digi DhanVyapar
Yojana for merchants will also
require the feedback mechanism to
work or else it wont be sustainable.
o The feedback mechanism:
Government starts introducing new
apps and schemes aimed at
promoting cashless transactions.
They give incentives in the form of
zero transaction costs based on the
assumption that people will
respond to it and would readily
shift towards cashless alternatives.
This would in turn feedback and
because of the economies of scale,
these apps would be able to carry
on with zero costs for long. But
given the structural constraints
explained above, it is highly
unlikely that majority of the
economy would shift towards
cashless modes, thereby imposing
doubts on the feedback. In the
future, even government run apps
would have some costs attached to
them.
o Similar arguments hold for all such
apps.
Thus b, the transaction costs associated
with going cashless will always be positive
in the medium run. They cannot tend to
zero until and unless everyone in the
economy switches from cash to cashless
which clearly is not happening until we
overcome the problems and barriers
discussed in the feasibility section.
We can see that there is a double
implication - the causality between cashless
economy and the transaction cost tending to
zero runs both ways. The only way to break
that causality and achieve both of those
things is to provide the supporting
infrastructure.
Section III
Sustainability: Now we talk about the
interaction between government and
society and comment on the long run
sustainability of the new rhetoric.
The Game:
The situation can be modelled as a two-
player extensive sequential game where the
government moves first and the individual
makes his move keeping in consideration
the governments policy.
The government has two options- to
provide incentives (I) to encourage people
to minimize cash usage and march towards
a digital economy or to not provide an
incentive (NI).
The individual (representative of the
society) then decides to use cash (C) or go
for cashless transactions (NC) after every
move that the government undertakes.
Symbol I NI C NC
Meaning Incentive Incentive Using Not using
is not cash cash
provided provided (Cashless
mode)
The model of this extensive game allows us c is incurred but if the individual
to study situations in which each decision acts against the incentive due to
maker is free to change his/her mind as the structural constraints (shown in
events unfold. feasibility section) or behavioural
aspects (to be shown in next
We are assuming that each decision maker section), then the government does
is perfectly informed about previous not incur the full amount c, it
actions and the governments saves an amount h out of c.
announcements are credible. Formal Also, this c-h is a wasteful
definition of the game follows: expenditure because it is a loss from
Players: Government (player 1) - Action governments payoff but it does not
set: (I, NI) add to individuals payoff. (c>h is
obvious from definitions of c and h)
Individual (player 2)- Action Set: Being status-quoists i.e. not
(C, NC) promoting cashless economy by
providing incentives has no
Terminal Histories: (I, C), (I, NC), (NI,
monetary costs to the government.
C), (NI, NC)
Political costs might be there
Player Function: P()= Government, (losing in the next election) but they
P(I)= P(NI)= Individual are out of the scope of our analysis.
We assume that there are no extra
Preferences: Both want to maximize their costs of transacting in cash.
payoffs which is the difference between
their benefits and costs.
Symbol Meaning
a Benefit to the government if the economy goes cashless
Transaction cost (monetary) to individual of using
b
cashless means of transaction
Cost borne by the government in providing incentive to
c
the people to use cashless modes
Reduction in the cost of providing incentive ifindividual
h
uses cash in presence of incentive

Keeping the following notations in mind we

know that:
Payoff of player 1= f(a, c, h), Payoff of
player 2= g(b)
Assumptions and their validity
We are assuming that the moment
government gives the incentive, it
incurs some cost, irrespective of
whether or not the incentives pay. If
the people respond favourably and
use cashless modes, then the entire
Now we are using backward induction to
find the subgame perfect equilibrium of the
game. We can see that in the subgame
following history (NI), the player 2 will
always choose cash over the other strategy.
In the subgame following history (I), the
optimal strategy would depend on the
values of b and c.
 Condition Optimal strategy of the
subgame after history I
b<c Cashless
b>c Cash
b=c Indifferent between cash or
cashless
Now what will be the governments optimal
strategy given all this?
Condition Payoff of 1 Payoff of 1
from I from NI
b<c a-c 0 Empire, the masses do not readily
b>c -(c-h) 0 So, to make becoming digital
Solving for subgame perfect equilibrium
under various conditions:
If b>c, then the only SPNE is (NI,
C) which means that a cashless
economy would not be sustainable
because the government will
withdraw incentives in the long run
and people will transact in cash.
If b<c and a<c, then also the only
SPNE is (NI, C) which means that a
cashless economy would not be
sustainable because the government
will withdraw incentives in the long
run and people will transact in cash.
But if b<c<a, then the SPNE is (I,
NC) which means that government
will continue to provide incentives
and the individual would be using
cashless modes.
Section IV
Lets see what behavioural economics has
to say about all this.
Behavioural Aspects: Creating temporary
cashless economy by enforcement
mechanism or providing incentives would
not necessarily work. Let us study this
using behavioural economics:
Why enforcement might not work?
1) In a country like India, where
independence was achieved by a
series of revolts against the British
subsume to anything inconvenient.
convenient is key, only then, steps
like demonetisation, imposing
restrictions, etc. on cash
transactions would be feasible and
achieve the desired results. We are
the worlds second largest
democracy after all.
2) With high degree of enforcement
comes high degree of breaching
(Gneezy et al). Large penalty on tax
evasion leads to higher tax evasion
(Hendriks and Myles).
3) As we have proved that the
economy is not ready for going
cashless, so if by force, online
transactions are promoted,
cybercrimes will multiply manifold
since hackers will have a broader
population to target hence a greater
incentive to develop better means to
breach the existing security levels.
Why might the incentives not work and
give the desired results?
Economists usually assume that monetary
incentives improve performance, and
psychologists claim that the opposite may
happen. We present and conclude that there
is a possibility of incentives not being
favourably responded to. Studies have
found that the effect of monetary
compensation on performance was not
monotonic. Thus, there is a possibility that
our conclusions from the game theoretic
analysis, whatever they are, fail at the hands
of behavioural economics overpowering
microeconomics. Even in the presence of
incentives, there is nothing which ensures
that the people will respond favourably. In
this section, we attempt to seek answers to
why all this might happen.
1) Perception of an Incentive
Ones perception of an incentive,
especially monetary incentive has a
huge role to play when it comes to
their response to it. Heyman and
Ariely (2004) look at whether
individuals frame a situation as
social or as monetary. In an
experiment that involved students
dragging a computerized ball to
different parts of a screen, they find
that those paid in candy do better
than those paid in cash, presumably
because candy is a social reward
rather than a monetary one.
(garbage example Gneezy et al)
2) Herd Mentality
The differences between a social
and a monetary reward may also
change individuals beliefs about
the behaviour of others: for
example, people may believe
incentives are in place because the
social norm is that people do not
contribute. An analogy can be
drawn and we can say that people
think that using cash is a social
norm and that is why government is
providing incentive to go against
this social norm.
3) Public Good
If we think of cashless economy as
a public good and an individual
shifting to cashless modes as his
contribution towards the public
good, then also, there is nothing that
ensures that the incentives will raise
his contribution to the public good.
Theories about prosocial behaviour
have shown the same. (Blood
donation example, Gneezy et al)
(Also tendencies to free ride)
4) Naming and Framing
When the government started
realising after some analysis by a lot
of economists stating how
demonetisation could not attain its
slated aim of uprooting corruption,
it word crafted the aim of
demonetisation to cashless
economy. The framing of the
decision situation critically
influences pro-social behaviour.
For example, whether a prisoners
dilemma game is labelled as a Wall
Street Game or a Community
Game can change behaviour
substantially (Liberman, Samuels,
and Ross, 2004). Had the
government begun with the aim
and name of creating a cashless
economy, the responses would have
been stronger.
5) Trust Factor
Peoples response to any
government policy related to
taxation etc. i.e. whether or not
there is voluntary cooperation
depends on the trust factor. E.g.,
there is high probability of tax
evasion if people do not trust the
government or think that it might
not use the money raised as revenue
judiciously and for the good of the
people (Gneezy et al have proved
this through game theoretic
modelling of trust relationships-
saying that the effectiveness of
using incentives to encourage
contributions to public goods, like
volunteering, depends on whether
those incentives affect the trust
relationship between the parties
involved.)
6) Risk Factor
If ultra-high incentives are provided
for long, people might perceive that
the thing is associated with high risk
and thus, they might respond
against the incentives. (nuclear
power plant example - Gneezy et al)
7) Elasticity and Habits
One might argue that people are
likely to get habitual to using
digital modes of payment, etc. and
hence, even after removal of
incentives, they will continue to use
cashless means. How much time is
sufficient to make people habitual is
again contentious and depends on
elasticity. Probably cashless means
were seen as a temporary alternative
only by most.
8) Information Lags
Prendergast (1999) also points out
that poorly structured incentives
can have unintended
consequences. He focuses on other
reasons why poorly structured
incentives can backfire. The
incentives currently in place are
poorly structured in the sense that a
huge number of apps for online
transactions might lead to problems
of indecisiveness. People might
fear making wrong choices in the
absence of authentic information
and hence show an inertia in
moving to cashless modes.
9) Ricardian Equivalence
Like Ricardo said people perceive
any kind of tax cut as temporary and
thus do not respond to it. When the
government is running a deficit,
people will guess that they will have
to bear the burden of that sometime
in future and based on this, they
choose their optimal strategy. Here
also, the current tax cuts and
benefits might be perceived as
temporary incentive to convince
people to minimize evasion. Hence,
they might not react in the way
government is expecting.
10) Wasteful Expenditure
It will lead to wasteful expenditure
as carrying a card would incline an
individual to spend more as its
analogical to having huge amount
of cash in hand wherein we spend
more knowing we have more.
Conclusion
To make any final comments, we need to
wait and record better empirical data on the
values of a, b and c as of now. We can only
make arguments as to what is necessary to
reach a particular outcome.
If the government wants to sustain the
cashless economy, it will have to make a
gradual movement towards it by first
ensuring infrastructure, financial inclusion,
literacy, urbanisation, awareness, change in
perception, security against cybercrimes
and developing all the prerequisites
essential to accomplish the dream of a
cashless economy. If that task is
accomplished, then b will tend to zero as
we had shown in our study, a will be high
once the feasibility aspect is taken care of
and even c is likely to be less as it hugely
depends on b, even lesser than the benefit
accruing to the government i.e. a. As we
mentioned in the feasibility section about
the feedback mechanism, it shows that
there is a double implication, the causality
between cashless economy and transaction
cost tending to zero runs both ways and the
only way to break that causality and
achieve both of those things is to provide
the supporting infrastructure. Thus, b<c<a
would be achieved and the cashless India
will be a reality.
In the current scenario, (NI, C) seems to be
more obvious.
Steps like demonetisation are not
required to set things in place. The
idea to intend people into adopting
cashless payments, at a stage when
you do not have the wherewithal to
meet the demand at such huge scale
quickly, is unfeasible and
impractical.
The need of the hour is to start from
scratch. Implementation of policies
related to infrastructure have to be
strictly monitored. Once the
structural barriers are crossed,
cashless India might be a reality.
The only way a large democracy
like India can become a cashless
economy is through gradual
movement towards this goal.
References
Lecture by Mr. Avinash Jha, RBI reports
for statistics, when and why incentives
(dont) work to modify behaviour? by Uri
Gneezy, Stephan Meier, Pedro Rey-Biel,
Osborne for formal definition of game,
Decision to demonetise currency shows
that they dont understand capitalism by
Prabhat Patnaik, EY Reports, TRAI
reports, journals, magazines.
faculty.chicagobooth.edu/emir.kamenica/d
ocuments/behavioralincentives.pdf
 Effects of Fed Rate hike on the bond markets
in the United States
The saga of the zero-percent lending rates
in the U.S. started during the Financial
Crisis of 2007-09. To prevent a Great
Depression-like situation in the economy,
the policymakers of the United States of
America decided to set the lending rate of
interest at the rock-bottom level to keep the
economy running, even if it was barely
running on steam. Experts have been
speculating an increase in these rates since
a long time now and the chances of a rate
hike have never been greater than what they
currently are. Some of the leading
businessmen have also said that it would be
a welcome relief to see an interest rate
higher than zero-percent. However, an
increase in the lending rate of interest is
bound to come at a cost, a significant
portion of which will be borne by the bond
markets in the United States of America.
Before one can jump into the main
implications of this, it would make sense to
pass on some relevant knowledge to the
reader regarding the bonds.
Once equipped with this basic knowledge
and some mathematical tools, the reader
will be in a better position to understand
some of the possible implications which will
be proposed later in the article.
5 Rachit Sehgal is a first year student of Economics at Kirori Mal College, University of Delhi. He can be
reached at rachitsehgal110@gmail.com for comments, queries and suggestions.
By Rachit Sehgal5
What are Bonds?
Bonds are basically debt securities which
are issued by the government or any other
corporate with a promise to repay the
principal. A bond can further be diversified
into the following:
a. Coupon Bond- A coupon bond is
one which promises the holder of
the bond the repayment of his
principal at maturity along with
some regular (usually semi-annual)
interest payments during the
lifetime of the bond. The regular
interest payment is known as the
coupon payment. It is called so
because in the past, a typical coupon
bond contract would come with
some coupons attached with it
which could be exchanged for cash
by the holder of the bond at the date
mentioned on the coupon itself.
b. Zero-Coupon Bond- This is a bond
which is issued at a discount and can
be redeemed at par on maturity but
pays no interest during the lifetime
of the bond. The difference between
the issue price and the face value is
the reward that is given by the issuer
to the bondholder to hold the bond
till maturity.
To build a sound foundation of
understanding the propositions of the
article, it would make sense to pass on some
information regarding the pricing of a bond.
Typically, for an asset that is not traded in a
market, the fair value is calculated by
discounting the future expected cash flows
by a discounting rate, which is an
assumption about interest rates or a
minimum rate of return assumed by an
investor. Similarly, the price of a bond is
also measured by discounting the future
expected cash flows by keeping the Yield-
to-Maturity as the discounting rate. Even
though the Yield-to-Maturity(YTM) is not
the same as the interest rates, it is linked to
the interest rates in numerous ways. The
YTM is defined as follows:
In the simplest terms, the YTM is the rate of
return that is required by any investor to
invest in a bond. (This gives a very informal
definition of a YTM but is important from
the perspective of understanding).
Basically, YTM is that rate of return at
which the potential investor is indifferent
towards buying a bond. In other words, the
YTM is the same as the Internal Rate of
Return (IRR) of a bond, i.e. the rate which
makes the price paid for the bond exactly
equal to the net present value of the
expected future cash flows (formal
definition of a Yield-to-Maturity). Since the
YTM is the value by which all future cash-
flows that one expects to receive from a
bond must be discounted to get the price,
we can express the price as the following
mathematical expression:
Assume a bond with a Face Value given by
F, with a coupon payment given by C and
maturity of 5 years. Also, assume that the
coupon is paid once a year and let the YTM
be some y. The price (P) of the bond will
be given by discounting all the cash flows
by the YTM. Mathematically,
P= C/(1+y) + C/(1+y)^2 + _ _ _
+F/(1+y)
P= /(1+y)^E,
_ _ _ _ _equation (1)
Where, E goes from 0 to the time of
maturity (5 in this case) and represents
the Cash Flow at time E.
Here: C, C, _ _ _, C represent the coupon
payments and F represents the face value
of the bond that will be received at maturity
by the investor.
From the above information, it is evident
that the price of a bond depends heavily on
the Yield-to-Maturity of the bond.
An important observation that one must
make from the above expression is that
there exists an inverse relationship between
the YTM and the price of a bond. This
means that as the prices increase, the YTM
decreases. On the other hand, if the priced
decrease, the YTM increases.
Since the cash flows that the bondholder
will receive by holding the bond as well as
the time are fixed, a change in the price of
a bond can come only due to a change in the
Yield-To-Maturity of the bond. To compute
the effect that a change in the YTM will
have on the price of a bond, we can take the
partial derivative of the expression giving
the price (equation 1) of a bond with respect
to the YTM. This is given by the following:
P/y = . (-E) (1+y)^(-E-1)
= - E../[(1+y)(1+y)^E]
= [-1/(1+y)]*[ (E*)/(1+y)^E]
_ _ _ _ _equation (2)
The above expression is called the
Duration of the bond. The duration of a
bond can be interpreted as the effect that a
change in the YTM has on the price of a
bond. This means that the higher the
duration, the more sensitive the bond price
will be to a change in the YTM.
In the expression given in equation (2), it is
obvious that a lower value of the YTM will
cause the value of the duration (sensitivity
of the price due to a change in the YTM) to
be high as compared to a situation in which
the YTM would have been higher. This
allows us to derive another important
relationship:
The bonds duration is high when
the YTM is low.
The implication that this has on the
bond is that the bond price becomes
more sensitive to the change in the
YTM when the YTM itself is low.
This means that as the YTM
becomes low, the volatility in the
prices of bonds increases
significantly. This also works the
other way around, i.e. a higher YTM
implies a lower duration for the
bond.
Being aware of all the relevant information,
we can now go ahead and look at one of the
real-world applications of this concept.
The lending rates that are updated by the
Federal Reserve from time to time basically
represent the rate of interest at which one
financial institution in the United States
will be allowed to lend reserve balances to
another financial institution overnight on an
uncollateralized basis. The increase in these
rates by the Fed, which is certainly on the
cards, would reduce the incentive of any
financial institution to borrow funds from
another institution simply because of the
fact, that procuring these funds would now
be costly as compared to what it was.
Hence, these institutions will prefer to keep
some of their own funds aside to maintain
the minimum reserve balances to avoid the
need to borrow. This will limit their ability
to lend funds to the retail borrowers leading
to a lower inflation in the economy.
As far as the bond markets are concerned,
an increase in the Feds lending rates will
cause a corresponding increase in the
Yield-to-Maturity of the bonds. This is
mainly because of the fact, that the financial
institutions with excess funds will now
need an added incentive to invest in bonds
rather than just lending it to a different
financial institution. As we saw earlier, an
increased YTM is bound to cause a
decrease in the prices of bonds in the
markets.
This decline in the prices would not have
been so significant if the current YTM in
the markets was higher than what it
currently is. However, extended periods of
low interest rates have pulled down the
YTM in the markets in the past decade
causing the YTM to be extremely low. This
has caused the duration of majority of the
bonds to sky-rocket, making them
extremely sensitive to a change in the YTM
of the bonds.
Keeping all these facts in mind, one would
not be completely wrong in proposing that
a hike in the lending rates by the Fed will
cause the prices of the bonds to plummet
and that the meeting of the Federal Reserve
will be crucial in determining the fate of the
bond markets in the United States.
 Pratyaksha Hastaantarit Laabh (PaHaL)
Scheme:
move towards fixing Indias broken subsidies regime?
6
By Enakshi Panda, Payal Priyadarshini, Rituparna Sanyal and Shraddha Shrivastava

The PaHaL DBTL scheme is currently the Introduction

worlds largest subsidy benefit transfer
scheme. However, as the Economic Survey
2015-16 points out, policies of this type are
often more beneficial to the well-off. When
we consider a universal subsidy such as
that on LPG, which all households are
eligible for, the beneficiaries are diverse
and have skewed incomes. While this
scheme is commendable and ideologically
sound, we wished to study whether the
benefits of the scheme indeed trickle down
to those who require it most. Due to several
constraints such as lack of resources, we
could only interview 100 urban-poor
households in New Delhi. Our survey
established that though the majority of our
sample (72%) received the subsidy, there
are still many who are not aware of the
scheme; and among those who are aware,
44% do not know when and the amount of
subsidy that comes into their account.
This is a cause of serious concern and a lot
more work needs to be done to eliminate the
hurdles that are preventing it from being an
overall success in the eyes of the public.
This paper uses qualitative and quantitative
data, along with secondary information, to
evaluate the efficiency of the scheme.
"If the JAM Number Trinity can be
seamlessly linked, and all subsidies rolled
into one or a few monthly transfers, real
progress in terms of direct income support
to the poor may finally be possible," stated
the Economic Survey 2014-15. It
acknowledged that price subsidies are often
regressive7. In a move to eliminate leakages
in subsidies without reducing the amount of
subsidies themselves, the JAM (Jan dhan,
Aadhaar, Mobile) Number Trinity was
extended to directly transfer subsidies to
LPG customers, and is being considered for
food and kerosene subsidies as well. The
Trinity can cut the governments subsidy
burden by 25-30%.
The Indian government has been providing
LPG subsidies since the late 1970s, in order
to make clean cooking fuel affordable for
Indian households (Jain, Agrawal, &
Ganesan, 2014). With the rise in LPG
consumption and prices, the overall annual
subsidy burden on the government has
more than tripled over the last 10 years,
from INR 10,246 crore in 2005/06 to INR
36,580 crore in 2014/15 (Petroleum
Planning and Analysis Cell, 2015). In order
to target the rising burden on the

6
Enakshi Panda, Payal Priyadarshini, Rituparna Sanyal and Shraddha Shrivastava are students of Economics at
Miranda House, University of Delhi. They can be contacted at enakship97@gmail.com for comments, queries
and suggestions.

7 Meaning, a rich household benefits more from the subsidy than a poor household (97% of LPG is consumed
by the richest 30% of households; only 9% of the subsidies go to the poor).
government, among other major issues,
direct cash transfer of subsidy and targeting
the beneficiaries was recommended. In line
with the recommendations of the 2010
Expert Group, the Government of India
launched the Direct Benefit Transfer for
LPG Scheme in 2013.
The PaHaL (DBTL) Scheme for direct
transfer of subsidy to the LPG customers,
which was earlier launched on 1 st June
2013, and covered 291 districts, made
Aadhaar mandatory for the customers to
avail the subsidy. A modified version of the
scheme, re-launched in 54 districts on 15th
November 2014 in the first phase and on 1 st
January 2015 in the rest of the country,
removed the requirement of having an
Aadhaar number. With effect from 15th
May 2015, all LPG customers obtain
cylinders at market price and only those
who enter the scheme receive a one-time
permanent advance and subsidy directed to
their bank accounts on the purchase of each
cylinder. As of January 28, 2016, the
scheme covered 149.7 million domestic
connections (more than 90% of the total
active user base) (MoPNG, 2015). PaHal is
now the worlds largest subsidy benefit
transfer scheme (MoPNG, 2015). It aims to
curb diversion and weed out fake/duplicate
connections.
Our study aims to analyse the overall
efficacy of the scheme, while highlighting
its challenges and providing our
recommendations to overcome awareness,
availability and administrative hurdles. We
also wanted to study whether the
beneficiaries are able to access their money
easily.
In this paper, we start off with reviewing
existing literature on the topic and outlining
our methodology. We move on to talk about
the existing banking scenario among the
poor (especially urban poor) and give a
brief overview of the LPG market in India.
Finally, we discuss the scheme in detail, its
limitations and our suggestions for its
improvement.
Review of Existing Literature
Over the past few years, many reports and
articles have been written, reviewing the
functioning of the DBTL scheme.
The Economic Survey (2015-16) examines
the first variety of JAMthe PAHAL
scheme of transferring LPG subsidies via
DBT. The Pahal scheme has been a big
success. The use of Aadhaar has made
black marketing harder, and LPG leakages
have reduced by about 24 percent with
limited exclusion of genuine beneficiaries.
However, diversion of LPG from domestic
to commercial sources continues, because
of the differential tax treatment of
commercial and domestic LPG. In
other words, the One Product One Price
principle is still being violated. Despite
huge improvements in financial inclusion
due to Jan Dhan, the JAM preparedness
indicators suggest that there is still some
way to go before bank-beneficiary linkages
are strong enough to pursue DBT without
committing exclusion errors.
A Government Committee (May, 2014) has
examined the functioning of the DBTL
scheme in depth by meeting all
stakeholders to understand every aspect of
the scheme and the difficulties encountered
by the stakeholders, primarily LPG
consumers. After a detailed study, the
committee strongly recommends that the
DBTL scheme is recommenced as it is a
very efficient way to disburse subsidies.
However, it has suggested several systemic
changes and enhancements to mitigate the
hardships reported by the LPG consumers.
The Council on Energy, Environment and
Water (CEEW) is one of Indias (and South
Asias) leading think-tanks with a vast
scope of research and publications. CEEW
addresses pressing global challenges
through an integrated and internationally
focused approach. CEEW conducted an
independent performance evaluation of the
modified DBTL scheme (April, 2016), with
a focus on assessing the efficacy of the
scheme against its stated objectives and its
implementation process, as well as the
experiences of key stakeholders with the
schemes implementation and impact. The
study also unravels the difficulties faced by
different stakeholders and puts forward
suggestions for reforms. Finally, it provides
insights into the lessons learned from the
schemes implementation. Besides
achieving its objectives to a significant
extent, the DBTL scheme elicited high
levels of consumer satisfaction. Moreover,
all the key stakeholders expressed a
positive outlook towards the scheme,
except the banking personnel.
Methodology
This paper is based on a household survey
covering 100 urban households in the
capital city of New Delhi. With an aim to
evaluate the modified DBTL scheme and
assess its efficacy, we surveyed urban poor
8
A purposive sample is a non-probability
sample that is selected based on characteristics of a
population and the objective of the study. It is a
non-representative sample of some larger
population, constructed to serve a specific need.
households with an average income of Rs
7,365 per month. A purposive sample 8 was
chosen to see whether the poor had access
to the subsidised LPG cylinders. Our focus
was on the customer only, not on the other
stakeholders 9. We carried out the surveys in
Timarpur, Vijaynagar, Patel Chest Institute
area, Burari and Adarsh Nagar in North
Delhi, and Dhaula Kuan and Chhattarpur in
South Delhi. The areas were selected based
on our convenience, in terms of proximity
and access. We also interviewed a few
support staff in our college.
We personally interviewed the respondents
and prepared a comprehensive
questionnaire for the same. Interviewees
were asked about their awareness of the
scheme, whether the payment of subsidy
was regular and whether they had any
difficulties in accessing it, among other
questions. The questionnaire was designed
to understand consumer awareness, their
perspective and their experience of the
scheme, as well as the issues they faced. We
also tried to elicit the users views on how
the scheme has affected them. The survey
questionnaire is provided in appendix 1.
All the interviews were conducted in
September-October 2016. (Note, the survey
Purposive sampling is also known as judgmental,
selective or subjective sampling
9
Key stakeholders include consumers, distributors,
oil marketing companies (OMCs), banks, and the
Ministry of Petroleum and Natural Gas (MoPNG)
was undertaken before the governments
demonetisation move.) The paper was
written in January 2017.
Financial Inclusion and Literacy
As LPG coverage expands in rural areas,
the subsidy program could create additional
barriers for economically weaker strata of
the society. These could be in the form of
no bank account or the distance the person
travels to have access to banking services.
While the Pradhan Mantri Jan Dhan Yojana
has increased the number of rural
households with bank accounts, we need
innovative payment approaches to fill the
gap of last mile access to banking services.
Our survey that was conducted in urban
poor areas gave the result that only 12% of
the households knew when the subsidy is
delivered, while 22% knew the amount of
subsidy delivered. Our inference from the
data is that though banks are located close
to households, they aren't used at frequent
intervals and very few people keep a check
on their bank account activities.
Of the sample urban poor population, only
1% did not have a bank account and 4% did
not have an Aadhaar card. Reasons for not
having an Aadhaar card included the
distance between people's homes and the
enrolment centre and the inconvenience of
the process. We assessed the schemes
efficacy in terms of the extent to which it
could achieve its stated objectives. Close to
71 % of the consumers enrolled in DBTL
reported receiving their subsidy in their
bank accounts. However, issues such as
non-receipt of subsidy and lack of
information about the subsidy transfer need
to be resolved urgently to ensure that the
subsidy reaches all deserving households,
not only for economical purposes, but also
in the quest for providing clean fuel across
the nation. Thus, the DBTL scheme could
help accelerate PMJDY, the financial
inclusion scheme, to cover the unbanked
households. This would also improve the
overall outlook of the scheme for the public
at large.
The LPG Market in India
The rising preference for LPG (Liquefied
Petroleum Gas) for domestic consumption
has been witnessed through the expanding
customer base of the LPG market in India.
At the same time, as our data suggests, 8%
of the sample still uses coal for their
cooking and heating needs, whereas
another 8% uses LPG along with coal. LPG
customers are tied to LPG distributors,
usually determined by the geographical
location, thereby providing customers very
little freedom to choose their distributors.
LPG distributorships are appointed by the
Public Sector Oil Marketing Companies
(OMCs). Heavy subsidies in domestic LPG
sector by the government makes it difficult
for private firms to survive in this sector. As
per our survey, there were three major
market players, all from the PSU sector,
viz. Indane, Bharat and HP. Their
respective market share was 62.9%, 24.7%
and 12.4%.
Under the prevailing system, with DBT in
place, the government identifies
beneficiaries by linking households' LPG
customer numbers with Aadhaar numbers
to eliminate 'ghost' accounts. Through the
PAHAL scheme, the Bank account, Aadhar
number and Mobile number of the
beneficiary are linked so that direct transfer
of subsidy to his/her bank account is
possible. Bookings are now done through
SMS. In our sample of urban poor, very few
were literate enough to make bookings on
their own. Most of them have to approach a
third party for booking their cylinders.
Households buy at the market price and
have the subsidy credited in their bank
accounts thereby paying a higher amount in
cash. The market price which keeps on
fluctuating was reported as Rs. 532
(average value). In order to address the
issue of households' liquidity constraints, it
was proposed that the subsidy would be
credited within 3 days. However, the results
from our survey differ. Where most
households confirmed that the subsidy was
credited every month, the few who updated
their passbooks regularly reported that
subsidy was credited within 7-10 days.
Most households, however, did not know
when and how much subsidy was credited.
There is no intimation from the banks upon
crediting the subsidy.
Households can buy only 12 subsidised
cylinders (of 14.2 kg each) per annum, after
which they can buy unlimited number of
unsubsidised cylinders. In our survey,
people reported their annual number of
refills as 11 on an average. A market with
such diverse network of customers and
distributors requires proper discipline and
coordination. Our data suggests the mean
number of days for delivery of cylinders as
5 days. While none of the households
reported any problem in the process of
getting a connection, most of them seemed
upset with the delay in delivery of
cylinders.
The Black Market for cylinders
The main motive for switching to DBTL
was to put a check on black marketing. It
aims at reducing leakages by identifying
genuine beneficiaries and eliminating ghost
accounts. However, the black marketers
seem to have devised new ways for their
activities. Here we analyse this aspect in
both domestic and commercial LPG sector.
During the survey (particularly in Dhaula
Kuan), it was observed that households
were more concerned about availability and
delivery of cylinder rather than its price.
Delay in delivery and discrepancy in weight
was the main problem they faced. 30% of
the sample admitted buying cylinders in
black. The main reason stated was instant
availability and no discrepancy in weight
although at a higher price. Respondents in
Dhaula Kuan reported that before
delivering the cylinders, the delivery men
tamper the seal, transfer some amount of
gas from each cylinder into cylinders
provided by the black marketers and then
deliver the underweight cylinders.
Therefore, even after eliminating
middlemen from the process of transferring
subsidy, there are still other factors playing
a pivotal role on the supply side of the black
market. Discrepancy in weight and
diversion of cylinders to the black market
leads to shortage of these cylinders and
hence, delay in delivery. 5% of the sample
reported paying almost double the market
price in order to get cylinders immediately
from the black market.
There is a cap on the maximum number of
subsidised cylinders, currently fixed at 12
per annum, that households can buy in a
year. Beyond that, domestic cylinders will
be available at non-subsidised rates. This
was done not only to save on subsidy but
also reduce diversion. However, there is no
way to ensure that every household
exhausts its quota of subsidised cylinders
for its domestic use. This gives scope for
sourcing additional cylinders to
commercial establishments in the black
market. Because of the price differential
and different tax treatment of domestic and
commercial LPG, it is cheaper for
commercial establishments to procure
cylinders from the black market rather than
buying expensive commercial cylinders.
Therefore, there is a shortage of tax revenue
as well. The Economic Survey (2015-16)
reports that after DBT was introduced,
commercial LPG sales went up but only by
a small percentage (6 percent). At the same
time, sales of non- subsidised domestic
cylinders shot up. (Any empirical evidence
to show the impact of DBTL under PAHAL
on commercial LPG sales is beyond the
scope of this paper.)
The PaHaL (DBTL) Scheme
The DBTL scheme was launched initially
on 1st June 2013 by linking the LPG
subsidy solely to Aadhar the biometric
based unique identity number. With the
new government coming to power in May
2014, the scheme was re-launched as
PAHAL scheme in 54 districts on 15th
November 2014 and to the rest of the
country on 1st January 2015.
Under PAHAL, all domestic LPG
consumers were given two alternatives:
1. An LPG consumer who has an
Aadhaar Number has to link it to
their Bank account number and
LPG consumer number.
2. If an LPG consumer does not have
an Aadhaar number, then he/she can
directly receive subsidy in his/her
Bank account without the use of
Aadhaar number.
Domestic LPG consumers who have
already joined the earlier DBTL Scheme by
linking their Aadhaar number and Bank
account number to the LPG database would
not need to take fresh action for receiving
subsidy since the subsidy would be
transferred to their Bank accounts via
Aadhaar number based on the previous
seeding.
All LPG consumers who had not joined the
PAHAL scheme got a grace period of three
months from the date of launch to join the
scheme. During the grace period,
consumers were entitled to get LPG at a
subsidized price. Additionally, a period of
three months beyond grace period, known
as parking period, was given to LPG
consumers for joining the scheme. During
parking period, consumers were to get
cylinders as per their entitlement at market
price and subsidy was kept with Oil
Marketing Companies (OMCs). This
parked subsidy would be released as soon
as the consumer joins the scheme.
However, if a consumer joins the scheme
after parking period, the parked subsidy
would lapse and consumer would get
subsidy from prospective date only.
The government essentially identifies
beneficiaries by linking households LPG
customer numbers with Aadhaar numbers
to eliminate ghost and duplicate households
from beneficiary rolls. Households buy at
market price, currently around Rs 565
(approximately Rs 532.35 according to our
survey) and have the subsidy credited into
their bank account within 3 days (9.25
days, according to our survey). As per our
survey, approximately Rs. 153 (amount of
subsidy) was credited to the bank accounts
of consumers. A permanent advance was
also made by the government to reduce
household liquidity constraints.
Of our sample, 81% were aware of the
PAHAL scheme. There were broadly five
sources of information: newspapers and
television, the bank branch, gas agencies,
short message service (SMS) and word of
mouth (neighbours, friends, relatives, co-
workers, etc.).
72% of our sample availed this scheme and
were more or less satisfied with it, with the
main complaint being the delay in delivery
of the subsidy amount (or lack of it, in some
months).
Comparison between the DBT system and
pre-DBT system:
Direct benefit transfer for LPG (DBTL) is
one such UPA (United Progressive
Alliance) initiative that has been vigorously
pursued by the NDA (National Democratic
Alliance) government. Prior to this scheme,
the subsidy was given on the market price
of the cylinder, i.e. the people paid a price
lower than that prevailing in the market.
Now, consumers have to buy it at the
prevailing market rates and the subsidy
amount is directly transferred to them.
The feedback from those who have access
to PAHAL has been quite affirmative. That
does not imply that providing subsidies
through DBT has no problems. On the
contrary, this new approach faces several
challenges, the most important being the
banking network, which is the backbone of
the DBT system. In this system, subsidies
are transferred to beneficiaries directly
through their bank accounts. Hence, the
system cannot work if the beneficiary does
not have a bank account. Most customers
are quite unfamiliar with opening and
operating bank accounts.
Even though majority of the LPG
consumers have enrolled in the scheme,
consumer awareness about the objectives of
the scheme is very low. There should be a
continued focus on spreading awareness
about the specifics of the enrolment
process, opening new bank accounts, the
subsidy transfer process and the grievance
redressal mechanism, in order to improve
the schemes coverage as well as to address
the hassles faced by the consumers.
However, the direct benefit transfer is
anytime better than the previous system
which faced the following challenges:
1. Errors of inclusion and exclusion: This
refers to the exclusion of deserving and
inclusion of undeserving beneficiaries. The
former are frequently excluded on the
grounds that they are unable to prove their
identity while the latter utilise various
strategies of corruption or rent-seeking
behaviour to avail undue entitlements.
2. Bogus identities: Entitlements are also
unduly claimed on the basis of bogus
identities. These can be subdivided into
ghost and duplicate, which have now
reduced significantly, thanks to Aadhaar,
the unique identification number.
3. There were also operational errors such
as spelling variations in names and change
of address by the beneficiary which made it
difficult to verify whether it was the same
person. Thus, authentic identification was a
significant problem that was faced by the
government when it came to the provision
of goods and services. Aadhaar again takes
care of this.
Leakages were a major issue in the previous
system, which is now being better
controlled.
Bolas Familia:
Brazil runs a successful cash transfer
programme called Bolsa Familia.
Qualitative studies have highlighted how
the regular cash transfers from the program
have helped promote the dignity and
autonomy of the poor. Efficient
administration and good targeting has
enabled Bolsa Familia to achieve its
success at a very low cost (around 0.6% of
GDP), and build the base for ambitious
programs. The second key goal of Bolsa
Familia was to break the transmission of
poverty from parents to children by
increasing the opportunities for the new
generation through better education and
health outcomes. It has increased school
attendance and grade progression. Children
and families are better prepared to study
and seize opportunities with more prenatal
care visits, immunization coverage and
reduced child mortality. However, what
most people forget is that nearly half of
India lives in rural areas while only 14
percent of the Brazilian population is in
rural areas. Further, essential features of
Bolsa Famlia are often overlooked in
India: it is a conditional cash transfer
programme and cash transfers go hand in
hand with in-kind provision of schools and
medical facilities rather than replacing
government interventions.
Conditional Cash Transfers (CCT) gives
poor people cash conditional on good
behaviour such as sending children to
school. This helps the poor get some
income support on one hand and take steps
to lift themselves out of poverty on the
other. In the Bolsa Familia programme,
cash is delivered to a poor households
bank account on the condition that the
children will go to school until the age of
17 years and will have full set of
vaccinations in their first five years. But in
India, no such CCT has been included yet.
Critical Analysis
Evaluating the Programme:
With nearly 150 million registered
beneficiaries, the PAHAL scheme is the
worlds largest DBT programme ever. Yet,
due to several challenges, DBT under
PAHAL is just a beginning in using DBT as
the medium for providing subsidies. There
is still a long way to go. However, as the
first pilot for this approach, the lessons
learned from PAHAL have far-reaching
implications for the whole approach of
benefit transfers to poor households.
The goal of the government in subsidy
reform is not doing away with subsidies,
but targeting them effectively so that they
flow only to the intended beneficiaries.
Such targeting comes with its own
problems.
The price gap (market price vs. subsidised
price) distorts the market, providing
opportunities for arbitrage, diversion of
supplies and profiteering in the black
market. Problems of product adulteration,
leakages, ghost ration cards and harassment
of beneficiaries by the rationing
bureaucracy remain endemic.
The three key challenges being faced by the
government are: first-mile problems of
beneficiary identification as well as
transferring central and state funds to local
implementation agencies in a timely,
efficient and transparent manner so as to
prevent leakages; middle-mile problems
of inter-government coordination as well as
sending benefits to beneficiary or vendor
bank accounts without delays; and last-
mile challenges of ensuring rural
beneficiaries have adequate access to
remote banking services, i.e. proper
financial inclusion, to reduce exclusion
errors.
Bank staff is often reluctant to cooperate in
opening accounts, especially unprofitable
zero balance accounts, for poor
customers. These customers are quite
unfamiliar with opening and operating bank
accounts. Standard excuses are used such as
spellings of names not matching, signatures
not matching, address inaccuracy, etc., to
avoid opening an account or making a
payment.
Our survey resulted in the findings that
84% of the urban-poor households knew
about the scheme through various means
like news, gas agencies, banks, etc. 19% of
the households were not able to relate to the
name of the scheme or claimed ignorance
on what it was about. Of the total number
of households, only 29% knew the exact
amount of subsidy they were receiving.
Awareness of the scheme and the subsidy
received seems to be a major problem.
Awareness of when the subsidy comes into
their accounts is also lacking in a number of
households. Greater financial inclusion is
needed as though people know about
subsidies and whether they're receiving it or
not, they don't know the exact amount, and
don't access their bank accounts from time-
to-time. The network of Banking
Correspondents must develop further and
knowledge of mobile banking must spread.
On the brighter side, banks-both private and
national, and LPG distributors were present
in and near the localities we surveyed.
There were no accessibility issues to these
organisations. Also, 94% of the sample
owned mobile phones. This information, in
our view, should be exploited and they
should be educated on how to make the best
use of their phones. This will also make it
easier for the banks to directly coordinate
with and intimate the beneficiaries about
the subsidy.

DBT still requires an aggressive awareness
campaign. An awareness campaign is
necessary about the details of the subsidy
scheme in place for the low-income
households, and how the DBT system
works- especially the enrolment process10.
A final, disappointing observation is the
failure to induce rich households to
voluntarily surrender their subsidy claims.
Despite the much hyped Give It Up
campaign, only a small percentage of the
rich have given up their subsidy. This is a
sad reflection of our society.
Possible Impacts of Demonetisation:
As per the latest Financial Inclusion
Insights survey, 49% of Indian adults are
digitally included. However, a fraction of
these accounts stay dormant throughout.
India's current episode of demonetisation
has made the urban poor create more bank
accounts, access them and do more
10
Under the modified scheme, LPG consumers had
to become Cash Transfer Compliant (CTC) in order
to receive the subsidy in their bank account. The
consumers could become CTC by linking their
bank account number with their LPG consumer
number, either through their Aadhaar number
(Aadhaar-based CTC or seeding) or direct bank
account-based CTC (or seeding). The secondary
option of seeding without Aadhaar number is the
most significant revision over the earlier scheme
under which many beneficiaries were left out due
to an absence of Aadhaar number.
transactions. Not only bank accounts, but
more and more people are subjected to the
notion of "cashless economy" and with it,
there is hope of banking and transactions
becoming more and more integrated with
mobile. Thus, the urban poors who were
earlier financially illiterate are now
becoming more and more involved with the
banking system.
India has a deep mobile penetration. 94% of
our sample owns mobile phones, though
not necessarily smartphones. Mobiles can
not only transfer money quickly and
securely, but also improve the quality and
convenience of service delivery. They can
inform beneficiaries when the subsidy
arrives in their account and simultaneously
improve the bank-beneficiary linkage. As
the country takes baby steps to move
towards a cashless society, the poor
population may use their phones in a more
productive manner and be informed about
their bank account- when the subsidy
amount comes in, the amount of subsidy,
etc.
As mentioned, more awareness camps need
to be held to achieve this and make the most
of the situation.
In Aadhaar-based CTCs, the consumer is required
to link his or her Aadhaar number with his or her
bank account, as well as with the LPG database by
submitting forms at the bank branch and LPG
distributor, respectively. In bank-based CTC, the
consumer has to provide either bank details to the
LPG distributor or his or her LPG consumer ID to
the bank. Initially, the scheme had four different
forms for this purpose, which was later combined
into a single unified form for consumer
convenience (see appendix 2)
Conclusion
DBTL is a positive step towards fixing our
broken subsidy regime but there are certain
inconsistencies that need to be addressed
for its successful implementation. The most
important issue is exclusion of genuine
beneficiaries. Greater financial inclusion is
necessary to overcome such exclusion
errors. Awareness about the scheme has to
reach every household no matter how
remotely situated it is. However, financial
inclusion (as aimed by PMJDY) alone
cannot ensure a smooth transition towards
the DBTL scheme. Financial literacy is
equally important. Talking particularly
about our sample, people have opened bank
accounts under PMJDY but most of these
accounts remain dormant because of lack of
financial literacy.
There is a need to ensure timely delivery of
the subsidy as well as the information about
the same to the LPG consumers. A major
issue faced by the respondents was delay in
delivery and discrepancy in weight of
cylinders. For this, we suggest a centralised
grievance redressal mechanism under each
company in the LPG market to keep a check
on the people involved in supplying the
cylinders. DBTL tries to eliminate
middlemen from the process of transferring
subsidies but it is equally important to keep
a check on local level corruption.
The success of this scheme also largely
depends on the efficiency of the banking
system. Beneficiaries are not aware as to
when and what amount of subsidy is
credited to their accounts. The banks need
to step in to fill this gap. An SMS should be
sent to beneficiaries upon crediting the
subsidy to their accounts as is sent for
booking confirmation by the agency when
bookings are done through SMS. Not only
the banks, but the entire administrative set
up needs to be very efficient for the
successful implementation of such a large
scale technologically driven enforcement
system. The success of DBTL will decide if
DBT can be used to completely transform
the Public Distribution System in India.
But overall, majority of our respondents
were in favour of the direct transfer of the
subsidy to their bank accounts and felt it to
be a good scheme.
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LPG consumers have joined
PaHaL, March 2015
o Ministry of Petroleum and Natural
Gas, About the PaHaL scheme,
http://petroleum.nic.in/dbt/whatisd
btl.html
o P Upadhyay, Jayshree and
Roychoudhury, Arup, JAM trinity
can cut subsidy burden by 25-30%:
Jayant Sinha, Business Standard,
New Delhi, March 2015
o Press Trust of India, 'JAM Trinity'
linkage will check subsidy
pilferage: Survey, Business
Standard, New Delhi, February
2015
o Jain, Abhishek, LPG for every
Indian household, The Hindu,
March 2016
o Press Information Bureau,
Government of India, Pahal
acknowledged by the Guinness
Book of World Records as the
largest cash transfer program
(households), August 2015
 Financial Analysis of Investments in Rooftop
Solar Systems by Delhi Household
Introduction
At the recently held Conference of Parties
(COP) 21 summit, India has committed to
producing 100 Giga Watts (GW) of solar
energy by 2022 (Ananthakrishnan, 2015),
out of which 40 GW are to be generated
through grid connected solar rooftop
systems (Meza, 2016). Delhi, with its
sizeable solar potential, has pledged to
generate 1 GW of solar power, which
amounts to 4.2% of the total energy
consumed in the city. Keeping in line with
this ambitious vision, the Delhi government
passed the Delhi Solar Policy in June 2016.
The Delhi Solar Policy estimates that the
region is blessed with 300 sunny days a
year and has available rooftop space of 31
sq. km. This gives the city a solar energy
potential of 2.5 GW, which corresponds to
an annual power generation of 3,500
million Kilo Watt Hours (kWh). Of this
potential, 26% is in the government sector,
25% in the commercial sector and the
largest - 49% - in the domestic sector
(Government of NCT of Delhi, 2016).
The policy, for starters, mandates solar
installations on all government-owned
buildings that have shadow free rooftops of
at least 50 sq. m. This will be carried out in
11
Archit Jain and Pragya Jat are second year students of Economics at St. Stephens College. Saumya Joshi is a
second year Economics student at Shri Ram College of Commerce. For comments, queries or suggestions, they
can be reached at
By Archit Jain, Pragya Jat and Saumya Joshi 11
a phased manner over the next 5 years. At
the same time, it encourages households to
install rooftop solar systems.
A variety of incentives and exemptions are
offered to incentivize the installation of
solar panels. Foremost amongst these are
the Generation Based Incentives. Rs 2 per
kWh of gross solar energy generated will be
paid out to the households, for the next 3
years. The payment will be made on a first-
come first-serve basis until the funds
earmarked for the GBI run out. The
minimum eligibility criterion for availing
the GBI is 1,000 kWh per year, and the
annual solar energy generation eligible for
GBI will be capped at 1,500 kWh per kept.
Moreover, adoption of solar panels would
exempt the households from several taxes
and charges.
In the light of these developments, this
paper broaches the question of the
economic viability of residential solar
rooftop systems, for households of varying
power consumption levels. There are two
reasons why we felt the need to examine
this. One, a household is more likely to
switch to solar energy if it is convinced that
the future electricity tariffs it will save
outweigh its initial capital expenditure,
than if it is provided with relatively abstract
ideals such as helping meet the citys peak
demand or mitigating climate change. Two,
majority of the discourse that followed the
introduction of the policy centered on solar
rooftops for government buildings.
However, if this discourse were to
encompass the residential sector,
conversations about solar energy could be
taken to the grassroots level and entire
communities could be sensitized towards
the need for adopting renewable
alternatives.
Methodology and Findings
(a) For purpose of the study, 3 categories of
households were identified, based on
their average monthly consumption of
power. These were households
consuming 400, 600 and 1,200 units of
power a month respectively. Though
this complicates the analysis, it is a
valuable distinction because households
in these 3 categories are likely to have
very different income levels and very
different kinds of electrical appliances.
Hence, the capacities of the solar
systems they install vary in size and
cost. Similarly, the tariffs they will
avoid upon adopting solar panels will
vary, since the Delhi Electricity
Regulatory Commission (DERC)
charges households of different
consumption levels differentially.
(b) The capacities of solar panel systems
that each of these household categories
would have to install were determined.
The conversion unit of a 1kWp system
generating 4 units of power in a day was
12
This conversion unit was given to us by officials
at the BSES.
used, with a Plant Load Factor of 18%.12
Table 1 summarises the results.
Table 1: Capacities of Solar Panels
required by households of different
consumption levels
Household monthly Capacity of solar
consumption panel
400 units 3 kWp
600 units 5 kWp
1200 units 10 kWp
(c) Data on the various costs of purchasing
and installing rooftop solar equipment
was obtained. This includes the prices
of solar panels, mounting structures,
cables, inverters, combiner boxes, main
junction boxes, fuses and disconnects,
protection switches, energy monitoring
meters and remote control and
monitoring systems. The costs also
included charges for transport,
installation, project management,
design and engineering. The total cost
of installing solar panels of varying
capacities was obtained from Tata Solar
Company.
(d) Information on net metering charges
was obtained from the Bombay Suburban
Electricity Supply (BSES). This is
summarised in Table 2.
Table 2: Total costs of establishing a net
metering connection

(e) The cost data obtained in steps (c) and
(d) were added to derive the total cost of
installing a solar system (of a capacity
relevant to each of the three household
categories under study). The 30%
capital subsidy provided by the MNRE
on the purchase and installation of solar
equipment was then accounted for, to
obtain the net cost. This is summarised
in Table 3.

Table 3: Net Cost of installing solar systems of different capacities

Net Cost to the

Costs for household
System Net metering Total Cost
purchase and after 30%
capacity charges (Rs) (Rs)
installation (Rs) capital subsidy
(Rs)
3 kWp 3,58,800 9,400 3,68,200 2,57,740
5 kWp 5,64,000 9,400 5,73,400 4,01,380
10 kWp 11,22,000 9,400 11,31,400 7,91,980

(f) After examining the net cost of installing
solar systems, the other side of the coin
is to impute the benefit a household
receives from doing so, which is the
electricity tariff that a household would
avoid in future years. Table 4
summarises the per unit power tariff
under different consumption slabs, as
currently levied by the DERC. These
are the tariffs that a household that goes
solar would avoid.
different consumption slabs
differentially and so the same
household may have to pay different
tariff rates for different units it
consumes; this necessitates the use of a
weighted average of all such tariffs that
may be applicable to a household. Table
5 summarizes the results.
Table 4: Per unit tariffs for different
consumption slabs

g) This data was used to calculate the Monthly electricity Per unit tariff
consumption (units) (Rs)
average per unit prices of power that 0-200 4
households consuming 400, 600 and 201-400 5.95
1200 units per month pay.13 As 401-800 7.3
801-1200 8.1
mentioned earlier, the DERC charges Above 1200 8.75

13
The calculation underlying Table 5 is enclosed in
Appendix.
 Table 7: Per unit tariffs (in Rs/ unit) for
Table 5: Average per unit price of the 3 household categories over the next
power for different household categories 20 years

400 units/ 600 units/ 1,200 units/

Year
Household monthly Average per unit month month month
2016 4.98 5.75 6.79
consumption price of power (2016) 2017 5.28 6.1 7.2
2018 5.6 6.46 7.63
400 units 4.98 2019 5.93 6.85 8.09
600 units 5.75 2020 6.29 7.26 8.57
2021 6.66 7.69 9.09
1200 units 6.79 2022 7.06 8.16 9.63
2023 7.48 8.65 10.21
2024 7.93 9.16 10.82
(h) These tariff rates were then projected 20 2025 8.41 9.71 11.47
years (the lifespan of an average solar 2026 8.91 10.3 12.16
2027 9.45 10.92 12.89
panel) into the future. The average 2028 10.01 11.57 13.66
annual tariff hike was assumed to be 6% 2029 10.61 12.26 14.48
2030 11.25 13 15.35
per annum, which is an extrapolation of 2031 11.92 13.78 16.27
the average annual tariff hike in Delhi in 2032 12.64 14.61 17.25
2033 13.4 15.48 18.28
the period 2003-2015. Table 6 shows 2034 14.2 16.41 19.38
how the 6% average was derived and 2035 15.05 17.4 20.54

Table 7 summarises our best predictions

for the tariff rates 20 years into the (i) To compute the electricity bills of the
future. households from the tariff rates, the rates
from Table 7 were multiplied with the
Table 6: Historical experience of tariff monthly consumption levels which they
hikes by the DERC stand for. This was multiplied by 12 to
derive annual tariff saved. The computation
% tariff hike (rounded is summarised in Table 8.
Year
to nearest integer)
2003-04 -6 (j) Now we have a data series both for the
costs incurred in installing a net-
2004-05 7
metered solar system and for the
2005-06 12
conventional tariff costs saved by doing
2006-07 1
go. Next, the generation based
2007-08 -1
incentives (GBIs) offered by the
2008-09 2
Government of Delhi under the Delhi
2009-10 0
Solar Policy were taken into the
2010-11 1 account. Each household generating
2011-12 12 more than 1,000 kWh power per year
2012-13 27 was provided with a rebate of Rs 2 per
2013-14 14 unit with a cap of 1,500 units generated
2014-15 5 per kWp. This implies a generation
Average 6 based incentive of Rs 3,000 per year for
each household category.
Table 8: Tariff bills saved (in Rs) by the
3 household categories by adopting (k) All these cash flows were juxtaposed to
solar energy derive the households total annual cash
flows. The cash flows were discounted
400 units/ 600 units/ 1,200 units/ at 6% to facilitate inter-temporal
Year
month month month
2016 23,904 41,400 97,776 comparisons. 6% was deemed the
2017 25,344 43,920 1,03,680
appropriate discount rate as it is the
2018 26,880 46,512 1,09,872
2019 28,464 49,320 1,16,496 approximate after-tax interest rate on 20
2020 30,192 52,272 1,23,408
2021 31,968 55,368 1,30,896
year Fixed Deposits in India (which
2022 33,888 58,752 1,38,672 capture the opportunity cost of
2023 35,904 62,280 1,47,024
2024 38,064 65,952 1,55,808
investing the said amounts in solar
2025 40,368 69,912 1,65,168 panels). Finally, the cumulative NPV
2026 42,768 74,160 1,75,104
2027 45,360 78,624 1,85,616 (Net Present Value) series was
2028 48,048 83,304 1,96,704 calculated for each household category.
2029 50,298 88,272 2,08,512
2030 54,000 93,600 2,21,040 The cash flows for the 3 household
2031 57,216 99,216 2,34,288 categories are enclosed in Tables 9, 10
2032 60,672 1,05,192 2,48,400
2033 64,320 1,11,456 2,63,232 and 11.
2034 68,160 1,18,152 2,79,072
2035 72,240 1,25,280 2,95,776

Table 9: Annual Cash Flows (in Rs) for a household consuming 400 units/month
Table 10: Annual Cash Flows (in Rs) for a household consuming 600 units/month

PV of
Generation Avoided
System Annual Annual Cumulative
Year Based Electricity
Cost Cash Flow Cash NPV
Incentive Cost
Flow
2016 -4,01,380 -4,01,380 -4,01,380 -4,01,380
2017 3,000 41,400 44,400 41,887 -3,59,493
2018 3,000 43,920 46,920 41,759 -3,17,734
2019 3,000 46,512 49,512 41,571 -2,76,163
2020 49,320 49,320 39,066 -2,37,097
2021 52,272 52,272 39,061 -1,98,036
2022 55,368 55,368 39,032 -1,59,004
2023 58,752 58,752 39,073 -1,19,931
2024 62,280 62,280 39,075 -80,856
2025 65,952 65,952 39,037 -41,819
2026 69,912 69,912 39,038 -2,781
2027 74,160 74,160 39,067 36,286
2028 78,624 78,624 39,074 75,360
2029 83,304 83,304 39,056 1,14,416
2030 88,272 88,272 39,043 1,53,459
2031 93,600 93,600 39,056 1,92,515
2032 99,216 99,216 39,056 2,31,571
2033 1,05,192 1,05,192 39,065 2,70,636
2034 1,11,456 1,11,456 39,048 3,09,684
2035 1,18,152 1,18,152 39,051 3,48,735
2036 1,25,280 1,25,280 39,062 3,87,797

Table 11: Annual Cash Flows (in Rs) for a household consuming 1200 units/month

PV of
Generation Avoided
System Annual Annual Cumulative
Year Based Electricity
Cost Cash Flow Cash NPV
Incentive Cost
Flow
2016 -7,91,980 -7,91,980 -7,91,980 -7,91,980
2017 3,000 97,776 1,00,776 95,072 -6,96,908
2018 3,000 1,03,680 1,06,680 94,944 -6,01,964
2019 3,000 1,09,872 1,12,872 94,770 -5,07,194
2020 1,16,496 1,16,496 92,276 -4,14,918
2021 1,23,408 1,23,408 92,218 -3,22,700
2022 1,30,896 1,30,896 92,277 -2,30,423
2023 1,38,672 1,38,672 92,225 -1,38,198
2024 1,47,024 1,47,024 92,245 -45,953
2025 1,55,808 1,55,808 92,223 46,270
2026 1,65,168 1,65,168 92,229 1,38,499
2027 1,75,104 1,75,104 92,243 2,30,742
2028 1,85,616 1,85,616 92,245 3,22,987
2029 1,96,704 1,96,704 92,223 4,15,210
2030 2,08,512 2,08,512 92,225 5,07,435
2031 2,21,040 2,21,040 92,232 5,99,667
2032 2,34,288 2,34,288 92,227 6,91,894
2033 2,48,400 2,48,400 92,247 7,84,141
2034 2,63,232 2,63,232 92,222 8,76,363
2035 2,79,072 2,79,072 92,237 9,68,600
2036 2,95,776 2,95,776 92,224 10,60,824
In these tables, cumulative Net Present
Values are written in red for the years they
were negative. That is, the year in which the
font in the last column changes from red to
black is the year in which the household
starts earning positive returns on its
investment. This is called the year in which
the household breaks even. Moreover, the
last cell of the last column gives the Net
Present Value of the investment when the
entire 20-years shelf life of the solar panel
is considered.
(l) The analysis till now implicitly assumes
that the household provides 100% of the
funds needed for the investment in solar
equipment out of its own savings. We
also examined a second case where the
Table 12: Annual Cash Flows (in Rs) for a household consuming 400 units/month (with
loan)
14
The debt to equity ratio for the nascent solar
rooftop industry is, in fact, 60:40.
debt to equity ratio was 60:40 was
considered.14 Data obtained from
various banks, such as the State Bank of
India, Vijaya Bank and the State Bank
of Patiala supported the fact that home
loans for purchasing solar equipment
generally carry an interest rate of about
9.5% and are repayable in 60 Equated
Monthly Instalments over 5 years.
Using these figures, the loan amounts
and the EMIs were calculated for each
household category.15 Based on this, the
above given analysis was slightly
tweaked to make room for the receipt
and repayment of the loan. The
observations are presented in Tables 12,
13 and 14.
15
See Appendix for the calculations.
Table 13: Annual Cash Flows (in Rs) for a household consuming 600 units/month (with
loan)

Table 14: Annual Cash Flows (in Rs) for a household consuming 1200 units/month
(with loan)

Generation
Avoided PV of
System Loan Repayment Based Annual Cumulative
Year Electricity
Cost received of the Loan Cash Flow Annual NPV
Incentive Cost
Cash Flow
2016 -7,91,980 4,75,188 -3,16,792 -3,16,792 -3,16,792
2017 -1,19,760 3,000 97,776 -18,984 -17,909 -3,34,701
2018 -1,19,760 3,000 1,03,680 -13,080 -11,641 -3,46,342
2019 -1,19,760 3,000 1,09,872 -6,888 -5,783 -3,52,125
2020 -1,19,760 1,16,496 -3,264 -2,585 -3,54,710
2021 -1,19,760 1,23,408 3,648 2,725 -3,51,985
2022 1,30,896 1,30,896 92,277 -2,59,708
2023 1,38,672 1,38,672 92,225 -1,67,483
2024 1,47,024 1,47,024 92,245 -75,238
2025 1,55,808 1,55,808 92,223 16,985
2026 1,65,168 1,65,168 92,229 1,09,214
2027 1,75,104 1,75,104 92,243 2,01,457
2028 1,85,616 1,85,616 92,245 2,93,702
2029 1,96,704 1,96,704 92,223 3,85,925
2030 2,08,512 2,08,512 92,225 4,78,150
2031 2,21,040 2,21,040 92,232 5,70,382
2032 2,34,288 2,34,288 92,227 6,62,609
2033 2,48,400 2,48,400 92,247 7,54,856
2034 2,63,232 2,63,232 92,222 8,47,078
2035 2,79,072 2,79,072 92,237 9,39,315
2036 2,95,776 2,95,776 92,224 10,31,539
Financial Analysis
The data compiled above allows several
meaningful conclusions to be drawn. The
payback period of the investment in solar
systems (the number of years it takes for a
household to break even), the net present
value of the investment and the internal rate
of return vary with the consumption level of
the household and with the financing
method considered (100% own savings or
taking a loan). The findings on these 3
evaluation criteria are summarised in
Tables 15, 16 and 17.
Table 15: Net Present Value of
investment in solar systems under
different scenarios
Table 16: Payback Period of investment
in solar systems under different
scenarios
Table 17: Internal Rate of Return of
investment in solar systems under
different scenarios
These results unequivocally indicate that
the installation of solar systems brings the
highest returns for the largest consumers.
They break even the earliest, generate the
highest Net Present Value and also have the
highest Internal Rate of Return. This is
because they enjoy economies of scale on
account of the larger number of units of
power they produce and consume.
In addition, the Levelized Cost of
Electricity (LCOE) is defined as the ratio
of the initial cost of the system and the
number of units of power produced in the
systems lifetime. In other words, the
LCOE as an evaluation criterion measures
the per unit cost of the solar energy
produced. Results on the LCOE are shown
in Table 18.
Table 18: Levelized Cost of Electricity
under different scenarios
Levelized
Cost of
400 units 600 units 1200 units
Electricity
(in Rs/ unit)
100% equity 2.98 2.79 2.75
40% equity 2.98 2.79 2.75
These LCOEs are very low compared to the
current per unit tariff that the households
pay: Rs 4.98 for the 400 units household, Rs
5.75 for the 600 units household and Rs
6.79 for the 1,200 units household. And
while the LCOE is computed keeping the
entire 20-year period in mind, the tariffs set
by the DERC will only increase over time,
as Table 7 projects (at around 6% p.a.).
Over these 20 years, the median tariff for
the households consuming 400, 600 and
1,200 units per month is approximately 2.9,
3.6 and 4.3 times higher than the LCOE.
The observations above corroborate the
hypothesis that adoption of rooftop solar
systems will prove cost beneficial for
households. While the exact results of the
cost-benefit analysis differ according to the
households circumstance, the bottom line
remains that solar energy from rooftop
systems is a much more economically
viable option than conventional energy. Not
only will it help solve nationwide problems
like ballooning peak demand and climate
change, but will also improve the standard
of living of the households that choose to
adopt it.
Recommendations
Our research demonstrates a sound case for
the adoption of solar rooftop panels by
households. On all parameters, solar energy
reduces the cost of consuming electricity
over the years. With this background in
mind, the following recommendations aim
to ensure greater realization of Delhis solar
potential:
Recommendation 1: Improve access
to finance
Ease of access to capital and credit
remains key to whether a middle
income household would transition to
solar rooftops. For those households
which do not have required capital
and/or access to credit, lease
agreements/third-party ownership of
solar panels could be a viable business
model and should be encouraged.
Alternatively, Resident Welfare
Associations could assist in pooling of
resources to obtain solar panels for a
colony. This marginally reduces the
per unit cost incurred by a household
and the large amount of initial
investment required opens up many
avenues of generating finance such as
bank loans, bond markets etc.
The current interest rate at which loans
to finance solar panels is 9.5% and the
loan is obtained under the category of
a Home/Home Improvement Loan. As
the findings of the study show,
consumers belonging to the 0-400
power consumption category have the
longest payback period, which
indicates that a lower interest rate on
solar loans might make adoption of
solar rooftop panels an easier decision
for them, given that the payback period
will decrease.
Preferential interest rates through
interest subvention schemes for loans
obtained to install solar panels are
needed. A specialized loan scheme
financing residential solar rooftop
projects should be introduced.
Recommendation 2: Create
awareness
The results of this study have
demonstrated that both high
consumption and middle consumption
household categories gain from solar
plants considerably. But in order for
solar panels adoption to gain greater
traction, information asymmetry needs
to be addressed. Awareness
programmes, advertising, infographics
would go a long way in addressing this
issue.
Create an online portal with a step by
step guide for installation of solar
 panels by households. Lists of The GBIs, therefore, should be
recognized sellers, costs of obtaining structured as targeted incentives across
net-meters, required solar capacity different consumption levels. Since the
calculators, financing options, highest consumption households already
available subsidies and incentives and, have the best economic case for adopting
process of obtaining the same should solar energy, the added incentive of a
be clearly stated and explained. GBI should be reconsidered for this
category. Hence, the GBI should be the
In addition, a helpline for clarification highest for the lowest consumption
of apprehensions and doubts a levels and can even be done away with
household might have, should also be for the highest consumption levels.
instated.
Finally, it would be beneficial to have a
Recommendation 3: Restructure the coherent roadmap of all the solar
Generation Based Incentives policies and incentives being adopted by
Generation based Incentives or GBIs the Government of Delhi, as well as the
seem to have a minimal impact given incentives available to them both from
the larger total costs of procuring the central and state governments. This
solar panels. Consider Table 19. would lead to greater clarity and the
policy certainty could result in increased
adoption of solar rooftops.
Table 19: Generation Based Incentives
as a proportion of total cost
Limitations of the Study
Cumulative GBIs as a
Capacity of Cost of
Earnings percentage
Solar Procuring
System Panels (Rs)
from GBIs of initial The results of the foregoing analysis hold
(Rs) cost
3 kW 2,57,740 9,000 3.42% on the basis of the following assumptions;
5 kW 4,01,380 9,000 2.24% if these assumptions break down, the
10 kW 7,91,980 9,000 1.14%
conclusions may no longer follow.

The GBIs, as indicated in Table 19, are

a) The residential rooftops being
laughably small when compared to the
considered have adequate shadow
overall cost of solar panels and hence do
free roof top area required to install
not fulfil their purpose of being an
solar panels to fulfil the households
incentive to drive households to install
consumption needs.
solar panels. This needs to be reviewed.
b) The demand for power remains
They create a bureaucratic hassle and
constant over the course of the
mislead any potential generating
study. This is perhaps the strongest
household. But, given that households
assumption made by us. We found
will take around 9-12 years to recover
it extremely difficult to find data to
the costs incurred by them for installing
estimate trends in the demand for
solar panels, an initial monetary push
power over the next 20 years.
through a bigger incentive is desirable.
 c) The houses being considered are
connected to the power grid, that is,
have net meters installed. They do
not have any battery to go with the
solar panels. This is because the
electricity generated in the presence
of sunlight is consumed
simultaneously through the day.
Any excess electricity produced is
fed back into the grid and energy
credit is received by the producer. It
is assumed that the energy needs to
be met at night are roughly
equivalent to the excess energy fed
back into the system, cancelling out
any electricity costs.
d) The Operations and Maintenance
(O&M) Costs for the solar panels
are negligible. This assumption was
deemed reasonable because even
though about 1.5% of the initial
capital expenditure on large scale
plants is assumed to be for O&M,
only regular cleaning is required for
household plants, which can be
taken care of by the households
themselves.
e) The availability of sunlight and
weather patterns in general remain
unchanged over the period studied.
Moreover, the findings of the study are
contingent on estimates of various variables
such as the after-tax interest rate offered by
banks, peak load factor of solar systems,
average lifespan of a solar system and so
on. In general, the values of these variables
will differ with time and place and hence
per se, the results of the paper cannot be
generalized to regions other than Delhi or to
starkly different time periods. However, the
framework within which the study operates
can be easily generalized; different
numerical values of these variables
(specific to the circumstance in question)
can always be inserted in this framework to
derive corresponding conclusions.
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INDIA, June 2013.
10. Raparthi Balaji, Challenges in Delhi
Power Sector Regarding Domestic
Consumers and Viable Solution
through Demand Side Management and
 Renewable Energy, National Power
Training Institute, August 2013.
Appendix
(a) Average per unit price of power
Given the tariff rates fixed by the DERC
(see table 14), the average per unit price
(in rupees) of power for a household
consuming 400 units per month is:
The corresponding figures for households
consuming 600 and 1,200 units per month
respectively are:
and
. the total generation is
(b) Equated Monthly Instalments (EMI)
The EMI for a principal amount P invested
at a monthly interest rate R% to be repaid
in N instalments is given by the formula
.
Hence, the EMI for a 5-year (60 month)
9.5% loan of Rs 4,75,188 taken by a
household consuming 1,200 units per
month would be
Multiplying by 12 months a year, we
derived an annual cash outflow of Rs
1,19,760. EMIs for the other household
categories were calculated in a similar
fashion.
(c) Levelized Cost of Electricity (LCOE)
The LCOE, as mentioned on page 30, is
the ratio of the initial system cost and the
total number of units of power generated
in the systems lifetime. For the 10 kW
system, the initial cost is Rs 7,91,980 and
The LCOE is, therefore,
The LCOE for other household categories
was calculated in a similar fashion.
CREDITS

The Editorial Board

Finance and Investment Cell, St. Stephens College, Delhi

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