The nightmare that was demonetisation

The nightmare that was demonetisation

Over a year has passed since we became a witness to the biggest self-proclaimed economic reform - demonetisation. This may become an epic example in the history of republic India that a decision of such a magnitude was undertaken by a popularly elected government without a clear mission, vision and objective.

Execution of this move started first with an announcement, followed by a meeting with all stakeholders like banks, post offices etc; and then began the revisions and further re-revisions.

The only perfect and meticulous planning was done in relation to the perception moulding exercise via media management and strategic content placement on various social media. This attempted to give the closely-guarded secret blunder a patriotic flavour and make us believe that it was something akin to a second independence movement.

The impact of demonetisation, however, has been severe in various orbits of the Indian economy.

At the macro level: Banks have received back the deposit of more than 99% of the demonetised currency in every possible type of account, on which they are liable to pay interest depending on the prevailing rates of respective accounts.

Banks also had to invest on recalibrating their ATM machines to accommodate new currency; additional expenses were incurred by all banks in terms of extra man-hours invested, electricity, maintenance etc. None of these additional expenses to undertake demonetisation compliance were covered by any government agency.

Traders and small-scale business organisations, which had availed various working capital borrowings facility, such as overdraft, current account etc are not utilising it, neither are they applying it to increase the credit limit.

They are also not applying for a fresh working capital loan or any other type of bank borrowing. As a result, they are not paying interest to banks, thereby further shrinking banks' revenue. All these have resulted in a gross loss for overall banking sector at the macro level.

At the micro level: Demonetisation resulted in a working capital crunch for almost six months due to which, apart from business volume shrinkage, there was also multiple breach of payment commitment in the whole value chain. This, in turn, led to conflicts and litigations within various stakeholders in the business community.

There is no grievance module to address any such conflicts arising out of digital payments which were promoted during demonetisation. There are no fleet cyber law experts available in the market to assist traders or consumers if they encounter any malpractices pertaining to demonetisation and new tools of digital economy.

The GST was the icing on the cake where we, in textiles, who never had been under the purview of indirect taxation had to now unlearn all our prevailing business practices and had to understand, learn and adopt the new taxation system and its compliance.

We need to remember that textiles is the highest employment generator in the unorganised sector and more than 90% of the operators are doing less than Rs 2 crore of annual business. Thus, they lack capabilities and resources to adapt to multiple compliances so rapidly.

Even if small traders are willing for compliance, the bigger question is how able they are. An additional cost burden of conservative annual fees of a chartered accountant will be not less than Rs 30,000 for filing 36 GST returns every year.

Further, as regards expenses in maintaining records for six years, that is 216 return documents on the whole (tax departments are eligible to scrutinise up to six years of records), the probability of getting a notice or scrutiny by the GST authority is again 216 times in the next six years. Resolving these forthcoming legal notices will be an additional expense in the form of legal fees and hefty non-compliance penalty.

To top it all, the biggest farce, however, has to be the claim by the Ministry of Finance, followed again by a hyper publicity campaign, that India has gone up in the world ranking on Ease of Doing Business. At times one wonders, what is the job of a government? Is it managing the economy and serving its citizen or is it the business of managing mass perceptions?

November 8, 2016, will always remain seared into the memory of every Indian citizen. As for the Indian economy, let's leave it to history to judge whether it was for good or bad for the country on the whole.

(The writer is a silk exporter in Varanasi, Uttar Pradesh)

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