What follows is a compilation of excerpts from various articles describing the impact of demonetisation.
Demonetisation effect: Cash crunch hits transport business hard
The demonetisation exercise has put the trucking business, one of the largest unorganised, cash-based sectors in the country, in great difficulty. Operators say their truck transport business has been badly hit by the demonetisation of Rs 500 and Rs 1,000 notes as they have no new cash even to pay the drivers, while clients are finding it tough to pay them in the new currency.
“In an effort to let go off their old higher denomination notes, most of our customers and clientele have passed on the abolished notes to us. They threaten us to accept them without which we don’t stand a chance of receiving any revenue from them,” he added.
“The withdrawal limits imposed upon us are too small to cater to middle-sized and large scale operators. How are we supposed to pay cash to drivers who venture out regularly for business related transactions? We are also facing issues with paying our pending installments to banks,” said Shamshuddin Khan, a mid-sized fleet operator.
The operators who use trucks, tanks and lorries for transport of goods and commodities across the nation, have complained against troubles while paying dues of drivers, bank installments and other payments due to cash shortage. With no cash in hand, at least forty percent of their operations has been majorly affected, they said.
“We are not able to take any new consignments or orders considering we have no cash to give to our drivers. Some of our drivers are stuck following the announcement as there is no new denomination notes available for immediate usage,” said Gurvinder Singh, vice-president, Bombay Goods Transport Association.
“One has to understand that plastic money penetration in India is minimum. We cannot expect our drivers to indulge in cashless transactions at one go and neither will they understand how to make use of it all of a sudden. The question remains whether each petrol pump, food joint or truck repair centre in interior areas will have facilities for accepting card payments,” added Manjinder.
Demonetisation: At Gujarat protests, farmers dump milk, vegetables on road
Farmers dumped grain and poured milk on the strees at protest rallies in Surat and Anand on Saturday to protest the withdrawal of high denomination currency notes and restrictions imposed on district central co-operative banks (DCCBs) on exchange and deposits.
In Surat, thousands of farmers under the banner of Gujarat Khedut Samaj (GKS) gathered at Jehangirpura in the Randher area in the afternoon, and travelled nearly 10 km through the city with truck-and tractor-loads of wheat, sugarcane and other agricultural produce to the office of District Collector M S Patel at Athwalines.
They handed over to the Collector a memorandum addressed to Chief Minister Vijay Rupani and Prime Minister Narendra Modi, saying there was a danger of prices of essentials like vegetables and milk rising, and possible “disorder” that could impact the Assembly elections in 2017.
At the Collector’s office, the farmers dumped wheat, paddy, vegetables and milk on the road in protest.
In Anand, members of the district Agricultural Produce Marketing Committee (APMC), farmers and women from milk cooperatives joined a huge rally that the district Congress took out to protest the “unplanned demonetisation”.
The protesters emptied sacks full of vegetables on the streets in a symbolic protest against the government’s decision that has affected their livelihoods. The rally travelled to the District Collector’s office where the protesters submitted a memorandum demanding immediate corrective action in the face of the crisis they were facing. The memorandum submitted to the Surat Collector said many villages in Gujarat did not have nationalised banks and farmers operated through DCCBs. “It looks as if the government does not trust the farmers, milk producers and their unions, which is why we have been left out of the financial transaction processes,” the Gujarat Khedut Samaj said in the memorandum.
The Reserve Bank of India has asked DCCBs not to accept or exchange the demonetised Rs 500 and Rs 1,000 notes. Of the 370 DCCBs in the country, 18 are in Gujarat. A large majority of the rest are in Maharashtra and Kerala.
The memorandum said that the monsoon crop had reached the APMCs but there was no cash for traders to buy it from the farmers, who are running out of time to prepare for the Rabi season. The restrictions on DCCBs be lifted, and the RBI should open its own counters at cooperative banks to disburse money to farmers, the GKS said.
“There are over 6.5 lakh account holders of Surat District Cooperative Bank, which has branches across the Surat and Tapi districts. The Surat District Co-operative Bank has over Rs 5,000 crore worth fixed deposits of farmers and co-operative societies like Sugar Co-operative Society, Cotton Co-operative Society, Paddy Co-operative Society, Service Co-operative Society, etc.
Demonetisation effect: Unbanked villages, small businesses badly hit as currency crisis continues
The lopsided rural-urban spread of ATMs and bank branches has snuffed out economic activity in rural India, with micro, tiny and small enterprises finding it impossible to get cash in 100-rupee notes for their daily operations.
Consider this statistic: every bank branch in a rural and semi-urban centre caters to more than double the number of people in an urban and metropolitan centre. According to a December 2015 Reserve Bank of India report on “financial inclusion in India”, each rural and semi-urban bank branch serves 12,863 people compared with an urban and metropolitan branch which serves just 5,351 people. The spread of ATMs too is skewed in favour of urban centres. Delhi, for instance, has 9,070 ATMs, more than Rajasthan, the largest state in terms of size.
Now, juxtapose this with the spatial distribution of micro, small and medium enterprises. The data on MSMEs, as per the latest available Fourth Census of MSME, 2006-07, reveal there are 200.18 lakh unregistered rural sector units, and they make up over 55 per cent of such enterprises in India. Urban SMEs are 161.58 lakh. The data from 2007-08 to 2014-15, compiled from the Entrepreneurs Memorandum filed by MSMEs in District Industries Centres, suggests that 22.10 lakh units were added during this period. It doesn’t say if they are rural or urban, but even if they were evenly spread, it does not change the broad picture.
Abhitabh Meshram, an entrepreneur in Nagpur, who supplies potable water in bulk to enterprises including government departments, says there is difficulty in paying cash to even hawkers for intra-city transport and workers, who are paid weekly. “I have another agri-based business, but in mandis, they wouldn’t supply large quantities of onion or garlic without cash.”
Zoom out to a particular state, for instance, Tamil Nadu. It has a million-plus tiny and small units. “There will be no production for a month-and-a-half. Many units in Chennai are still recovering their losses from the previous year when the city was flooded during the monsoon. While it is certain we will not register any sale, it is even more certain banks will debit the EMI from bank accounts on existing loans,” said C Babu, President, Tamilnadu Small and Tiny Industries Association, an umbrella organisation that represents such units, which employ over 15 million workers in all.
“Inadequacy of bank branches is one primary reason why cash dominates small businesses. Many rural branches are open for just a day or two in a week. People consider bank postings in rural India as a punishment,” says Anil Bhardwaj, Secretary-General, Federation of Micro and Small & Medium Enterprises (Fisme). “The smaller the enterprise, the bigger the problem. Anecdotal reports suggest that manufacturing value addition has come to a standstill,” he says.
Demonetisation effect: Massive layoffs, Tamil Nadu construction workers have no cash or food
* “Work on a villa and apartment project in Navalur (Chennai suburb), where I was employed for a year, was stopped on Sunday (November 13). We have no clue about the whereabouts of the contractor… over 300 workers are waiting for wages.” — R Ayyanar, mason, 42.
* “I have not eaten properly for three days…The contractor’s phone is switched off… We will wait.” — Nizamuddin, construction worker-cum-painter, 32.
These are the voices of only two of the estimated half-a-million migrant and unorganised workers who are facing layoffs in the construction sector in Tamil Nadu, 11 days after Prime Minister Narendra Modi announced the demonetisation of Rs 500 and Rs 1,000 notes.
According to experts and various agencies, the construction sector has come to a standstill in the region. Multiple reports from Chennai — which has the maximum share in the state’s construction sector — Coimbatore, Trichy and other areas warn of a disastrous situation if the currency shortage doesn’t get resolved soon.
Confirming reports that workers were struggling with no food or wages, N Nandakumar of the Confederation Of Real Estates Developers’ Associations of India (CREDAI), Tamil Nadu, said builders who are members of the organisation have been asked to arrange rations for workers at their shelters.
“On an average, there will be anywhere around 100 to 200 workers at a single project. CREDAI alone has 130 members (who are all leading builders) in Chennai. Many of us have decided to supply rations immediately as the situation is not too good. To prevent starvation, some of them have arranged catering services too,” he said.
However, CREDAI does not reflect the total number of builders and projects on the ground. According to a labour department official, there are 500-600 unorganised builders in Chennai, who are not members of CREDAI or other builders’ organisations. “Hundreds of these projects and thousands of workers employed in these projects have been affected. Neither a builders’ body nor a state government can handle this crisis,” he said.
While a labour department official said over 200 major construction projects in Chennai city, Old Mahabalipuram Road and GST Road areas have been either stopped or partially affected in the last four days, CREDAI and other sources said nearly 1,000 major projects in Chennai and Kancheepuram districts have been hit.
B Seenaiah, one of the largest infrastructure developers in the country and managing director of BSCPL, whose firm specialises in major highway and irrigation projects, said the impact on the construction sector may be anywhere between 30 to 40 per cent.
In the absence of cash, business is driven by trust
The impact of demonetisation of high-value currency notes may be the subject of much debate, but one thing is sure: it has increased the availability of credit, based on trust, in the marketplace. This extends from trading in goods and services to lending cash to people without collateral.
Small businesses without card swiping machines have two options: either accept old currency or trade in credit by placing immense belief in their customers. Most are doing both. However, running on credit has hit farmers, who need cash to pay off dues, the most.
G. Muniswamy Gowda, a vegetable grower in Devanahalli, said that he has been supplying vegetables to the market on credit most days. “The traders also don’t have money, particularly not in the new currency or Rs. 100 notes. Most traders in K.R. Market are asking to dump our produce in the market for credit, against a signed note by them. Over the last few days, some of them have paid me in installments. However, I still am owed over Rs. 40,000 and am facing a severe cash crunch,” he said. There is no guarantee when he will receive his pending dues.
The situation in APMC yards – co-operative markets – is no different. “We are unable to pay farmers for their produce as most of them refuse to take cheques. Most of them are giving us their produce on credit. A few are taking post-dated cheques. Our outstanding to farmers has increased multiple times over the last 10 days, to such an extent that we fear that repayment will have to be staggered over the next few months,” said Ravi Kumar, a senior trader in the APMC Yard, Yeshwantpur.
Demonetisation: Inconvenience to insecurity, the narrative is changing
As the chaos and disruptions continue, following the Nov 8 decision to scrap Rs 500 and Rs 1,000 notes, is the tide turning? Undoubtedly, the initial days of the financial surgical strike drew applause and endorsement from a vast majority of people, especially those in the serpentine lines. Writing on the subject last Sunday, I had argued how the underclass seemed to have rallied behind Modi for what they saw as a decisive and brave move to clean up the system. The nation, it was emphatically declared, was a winner from it. That was the sense coming out of street corner conversations, people on TV channels and news reports from across the country.
Cut to now, I see a once-assured narrative steadily wilting. The earlier almost nonchalant and casual attitude that demonetization was going to be all but a temporary ‘inconvenience’ seems to be rapidly mutating. Anxiety has replaced hope and the previous unflappable patience is making way for discernible worry and anger.
It is evident that the government underestimated the scale and complexity of the decision it took. Pulling out Rs 14.2 lakh crore, or 86% of the money in use by a nation of 1.2 billion people will involve more than inconvenience, for sure. Collecting and counting that money, which runs into 2,200 crore notes, and then destroying them is a humungous exercise that will take months and hugely strain the country’s banking system. So will be the task of getting new bills into circulation.
These are just some examples of widespread impact on the ground. Elsewhere I’ve blogged about the impact on small vendors that I witnessed personally.