On November 8th 2016, Prime Minister Narendra Modi called for a move that stumped the nation and paralyzed the country’s biggest currency denominations – the Rs. 500 and Rs. 1000 notes. As India’s largest currency bills were shown the exit door, its consequences bore discomfort for people from all walks of life. An estimated 86% of the notes in circulation went invalid in a matter of seconds. Panic assumed character in large number of people queuing up at petrol pumps to get rid of their soon-to-be-worthless big bucks. The following days saw hundreds piling up in front of banks and ATMs, either to exchange and deposit their money, or to withdraw some to meet their daily expenses. Those with smooth access to the online payment modes managed to survive the manic first week; others had no choice but to line up in never-ending queues. As disappointment and desperation reached a crescendo, many wondered if the move will eventually usher in a wave of change, wiping out the filth of black money.
Undeniably, millions with no bank account or personal identification have been hit the worst. For this lot, the likes of the daily wage earners, every failed attempt at getting money from the bank results into no food or basic necessities for the day. Small traders and businesses that dealt majorly in cash took the hit too. The local sabzi walahs and dhaba guys also frowned and grimaced owing to the plummeting sales.
Demonetisation has had a definite strike on various sectors of the economy. The 17 lakh-crore food and agriculture market in the country and the lives of many farmers have been affected in a multitude of ways. The FMCG (fast moving consumer goods) sector is likely to record a massive sales drop in months to come, an estimated “15-20% dip in the top-line for food companies in the third quarter,” opined Varun Berry, Managing Director of Britannia in an interview with Business Standard. Ex Prime Minister, Dr. Manmohan Singh said today in the parliament that the GDP could be hit as much as 2% overall.
Most consumers are avoiding cash transactions while others have none to dispense. Commodities remain stacked up in stores causing disruption in the supply-chain mechanism. The overall productivity across platforms and sectors is suffering as a result of people queuing up for long hours.
Reportedly, local stores as well as wholesale markets across the country are facing a severe slump in demand. There is an 80% lull in the regional vegetable and fruit markets. As customers fail to shop frequently, the risk of fresh produce getting wasted looms high over a local vendor’s head, in turn they place lower orders for the new stock. The problem of payment becomes a greater signifier of trouble as vendors find it difficult to pay their suppliers. Most produce is either stuck in-transit due to cost issues or owing to truck drivers who refuse to work in a cash-crunched environment.
Business at Delhi’s massive Azadpur market is at a standstill. The market is empty while vendors are witnessing unimaginable losses. An individual’s daily business of close to Rs.1000 has shrunk down to couple of hundreds a day. There are days when there is no work at all. Some are even accepting old currency notes with a hope to exchange them and get a way to support their livelihood. “Nothing is going on here. Our suppliers have stopped buying. So, we are not getting any produce. What are we going to sell to our customers? Our investments are stuck. The new currency bills are not easily available," Sanjay, a local sweet lime seller told the Associated Press.
And, it goes in a full circle, disturbing the synchrony of the entire chain of production-supply-demand.
Thousands and hundreds of daily wage earners and workers are facing a severe crisis. Many have not even received last month’s salary. Farmers are facing a double whammy as the buyers of the newly harvested monsoon (kharif) crop are either offering old currency or credit transactions. On the other hand, there is just no money for some farmers to buy the essentials for sowing the winter (rabi) crop as some of the state-led cooperatives, federations, and Primary Agricultural Credit Societies (PACS) brave the brunt of cash-crunch.
The participants in the local supply chain have traditionally depended on cash and are now facing a crippling situation on being unable to use their existing currency. This gets teamed with an inability to get quicker cash inflow from banks or from the reluctant, wary consumer. Local vendors who rely solely on perishable produce trucked from far-off areas are facing the brunt of the situation, those with buffer stocks of grains and millets fear an imminent run-out. “Rural recovery will take much longer time than we expect,” opined Varun Berry in one of his recent interviews.
Chief Marketing Officer, National Commodity and Derivatives Exchange (NCDEX) Nidhi Nath Srinivas talks of myriad ways in which the real-time adversity can be mitigated and the wave of unnecessary panic be therefore put to rest. In her blog, she shares some interesting views and renders a completely new perspective to the current situation. She talks of instances and areas in the country where farmers have lately been open to accepting cheques, for example, “Maize farmers in Nabrangpur, Odisha's poorest district, and coconut farmers in Karnataka took cheques from state agencies. The list is growing,” she writes. A farmer can keep his stock in “modern warehouses” and can even claim a loan against it. As most parts of the Indian economy work on cash, many don’t have internet access and millions function without a bank account, these are nothing but, “symptoms of the crying need for reform,” she notes.
Demonetisation can safely be termed a missile of great proportions aimed at an even bigger issue – black money – the aftermath of which can be taken as a learning by the government to strengthen existing loopholes and fissures. Electronic payments should be encouraged across the country, banking facilities must be made accessible and mandatory for one and all; ‘cash only’ should be a thing of the past. It is a “perfect opportunity to prise open closed minds and introduce new payment habits in this otherwise opaque part of the economy,” concluded Srinivas.
