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What Demonetisation Means For Businesses Big And Small?

Politicians adore disruptions even though the economy demands stability to flourish. The demonetization purge appears good for Narendra Modi's political narrative but comes at the cost of economic growth

Photo Credit : Reuters


Towards a cashless society- What's there to fear?
Death of cash seems okay till the time till the time people are making this choice freely. The point of concern is the unofficial war on cash that is going on, from the suspicion with which you are treated if you ever use large sums of cash or store at home or office.

We already live in a world that is unequal, as far as the distribution of wealth is concerned. Some fear that it may even be as unequal as it's ever been. The worry is that a cashless society may exacerbate inequality even further.

It will hand yet more power to the financial sector and banks and related fin tech companies, who will oversee all transactions. Are we ready to give this sector more power and influence?
In a world without cash, every payment you make will be traceable. Do you want governments (which are not always benevolent), banks or payment processors to have potential access to that information? Surveillance is terrifying.

Cash, on the other hand, empowers its users. It enables them to buy and sell, and store their wealth, without being dependent on anyone else. They can stay outside the financial system, if so desired.

India's 11.8 per cent of economy deals in cash. India's cash-to-GDP ratio is more or less parallel to many big economies. Germany's cash-to-GDP ratio comes in at 8.7 per cent while the same ratio in France is at 9.4 per cent. Japan has 20.7 per cent cash economy. And this massive disruption in the way the payments are done has brought India to become one of the fastest slowing economies of the world.

Does the cashless way work for Indian Businesses?
Even though the note exchanging norms and withdrawal norms have been relaxed and revised, the traders and marketers do not seem to be satisfied.

It's the 18th day since the note-ban was announced and still a huge wail of distress can be heard from small and medium business enterprises across the state. Small and medium businesses across all sectors have been hit hard, as most of their dealing used happen in cash. (which is not illegal)

One doesn't need to be an economist to understand how much an Indian household consumption expenditure is disturbed by the impact of demonetization. Household final consumption expenditure stood at an average of 60 per cent of GDP in the last few years. As India holds 11.8 per cent of its economy in cash, the cash-driven consumption story has come to an abrupt halt. The market is expecting six months of recession and slow recovery by the end of 2017.

Consumption-related companies are sweating with the fear of huge setback to sales during the next three to six months. The top 10 consumption-related companies have lost more than Rs 1.5 lakh crore of market value since the note ban. Cash flows may remain choked till liquidity eases, so does fresh investment and marketing expenditure.

Alarmed by the drastic fall in trade, commerce and business activities by around 75 percent post-demonetization, traders in Maharashtra have demanded various types of concessions to help tide over losses since the Rs. 500 and Rs 1,000 notes were demonetized on November 8 in an ostensible bid to control black money and weed out fake currencies. Lower revenues may push additional borrowings in the last quarter of the year.

Politicians adore disruptions even though the economy demands stability to flourish. The demonetization purge appears good for Narendra Modi's political narrative but comes at the cost of economic growth.

What do the traders & merchants have to say?
While malls and big showrooms are said to have picked up business after the initial slump, small and medium level traders in local markets are still facing 50-90 per cent dip in their business.

The reason these traders had not yet adopted the digital payment options practice because they were in wholesale business. "Most of the traders in Chandni Chowk and Khari Baoli, do not have online payment facility, as it drives customers away", said Chandni Chowk Sarv Vyapar Mandal's General Secretary Sanjay Bhargava.

Rudra Dinesh from Nayi Sadak, a wholesale trader who also runs a paper mill said that he dealt in cash primarily, before demonetization happened. Dinesh said, "The paper mills stopped the supply of paper as the demand in the retail shops had gone down."

He added, "Neither customers have cash to buy paper products from us nor we have enough cash to run the mills." However, some businesses have started using e-wallets to attract customers but their number is insignificant as the e-wallets have several restrictions too.

Recently, Paytm tried to get people to self-declare themselves as businesses and accept payments up to Rs.50,000 a months. That limit is very constraining for a medium sized business but it is subjected to rise after December 31.

According to the traders, the clothing business is the worst hit by the demonetization, despite November being the wedding season. Even the people involved with the event management sector suffered due to demonetization.

The traditional style of business has been affected, transacted with cheques has made goods and raw material costlier. "It is hampering our business but things should be normalized perhaps in six months," said a trader who did not wished to be named. The footfalls in the local markets too has gone down due to the cash crunch.

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