One year post note-ban cash crunch continues to kill businesses

One year post note-ban cash crunch continues to kill businesses

A year after the government announced withdrawal of high value currency notes and subsequently replaced them with new ones, the trade and businesses are still reeling under the impact of cash crunch. The currency in circulation is still 14% lower than the levels seen prior to demonetisation.

In a sudden and shocking development, the Prime Minister Narendra Modi announced scrapping of Rs 500 and Rs 1,000 denominated currency notes on November 8, 2016, which constituted 86% of the total currency in circulation at that time. The move was aimed at curbing black money and weed out corruption, Modi claimed in his statement.

According to the latest data available with the Reserve Bank of India (RBI), the currency available with public is at Rs 15,32,847 crore as on October 13, 2017, compared with Rs 17,74,187 crore available on November 4, 2016. This crunch is despite the fact that RBI had to double its expenditure on printing notes. The cost of printing notes doubled to Rs 7,965 crore in FY'17 from Rs 3,421 crore in FY'16 on account of new currency printing post note ban, the RBI's annual report said.

The country had entered the new calender year 2017 with just 52% of cash (Rs 9,13,763 crore) compared to early November 2016.

A cross-section of traders told  DH  that textile and garments units have been the worst hit in Bengaluru, with trade still lower by 30%-40%. "The garment sector and the textile sector have been still hit by the demonetisation," Hanumanthe Gowda, President Karnataka Small Scale Industries Association (Kassia) said.

He also said that small scale businesses are finding it difficult to change the ways of trade all of a sudden.

Other traders also complained about lack of credit to the informal sector, that comprises 90% of the Indian economy. "Earlier, informal businesses used to take credit for our businesses from relatives and friends, as the their options are limited in the formal banking system. Now that has stopped as the lenders' cashflow has come down as well," Rameshchandra Lahoti, Chairman Internal Trade - Federation of Karnataka Chamber of Commerce and Industry said.

On the corporate front, note ban and roll out of Goods and Services Tax (GST) seems to have impacted business optimism in the country.

According to Grant Thornton's International Business Report (IBR), a quarterly global business survey, business optimism in India has slipped from first position in the last quarter of 2016 to 7th position in the third quarter of 2017. The scale and the report are prepared based on the results of a quarterly global business survey of 2,500 businesses in 37 economies conducted in September.

The survey further states that Indian businesses have expressed low confidence over the revenue expectations in the next twelve months.

"There were clear signs of lag in the economy which caused the drop in ratings," Harish HV, Partner – India leadership team, Grant Thornton India said.

Associated Chambers of Commerce and Industry of India (Assocham) also concurred on the impact of note ban on informal sector. "Demonetisation has rendered many people jobless in the informal economy. Besides, rural sector has also been hit badly so much so that it will take massive time to recover from the blow," Secretary General Assocham DS Rawat said.

According to a report by the Centre for Monitoring Indian Economy (CMIE), a Mumbai-based think tank, the job loss in the country is estimated at 1.5 million in the first four months post demonetisation.

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