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-Abhay Saxena

To kill the demon of black money in India, PM Narendra Modi announced the demonetization of Rs.500 and Rs.1000 notes with effect from midnight of November 8. It was indeed a daring step, but it is witnessing mixed opinions from various sectors. While all agree that black money should be targeted and must be done away with, the views differ as far as modus operandi and its execution is concerned.

To begin with, people feel that newly introduced Rs.2000 note – and that too in very limited supply, is hardly a suitable medium to transact. The new Rs.500 note was made available only after about a week of demonetisation of old one. Even that note was a rare commodity for many days. The nation witnessed long serpentine queues that crossed the bank premises and ended on roads. People experienced sharp liquidity pain which was expected in a short run. Although it was declared that people can deposit the old notes which they hold into their bank accounts or get them exchanged in lieu of other denominations from banks, but execution of all this was a humungous task. The ATM withdrawal limit was initially set at Rs.2000 for each debit card in a day. However, majority of ATM machines ran dry within no time they were filled up with cash.

Although, the government has claimed that in a longer run the impact of this drive shall bear sweet fruits for national economy, the immediate impact of demonetisation on various sectors has mostly negative.

Handset sale nose-dives

Not only in smaller towns, but in big cities as well, the sales of mobile handsets have plummeted since demonetisation. Handset retailers, who by-and-large deal in cash, reported that their sales went down by 50-90 per cent in just a few days. Badly hit were the high brands such as Apple iPhone. It is very likely that future shipments might be put on hold as stocks pile up in absence of buyers.

E-commerce sales dip by 6-10%

Online orders to e-commerce sites in November took a sharp southward turn. In absence of cash on delivery (COD) facilities, the sales went down by 30% within a few days of demonetisation. Platforms like Flipkart, Snapdeal and Amazon have over 60% of their sales through COD. In the event of Rs.500 and Rs.1000 notes ceasing to be the legal tender, most customers cancelled their orders.

Wholesale and retail sectors suffer heavily   

In the event of liquidity crunch – with Rs.100 note being the highest denomination as Rs.2000 note happened to be a rare and not so useful currency, the severely affected sectors were retail and wholesale. The grocery shops and sabzi walas refused to take Rs.1000 and Rs.500 notes. Back end, they could not make fresh wholesale purchases for the same reasons.

Petrol Pumps, utilities flooded with cash

Since the government allowed fuel stations to accept old Rs.500 and Rs.1000 notes, the people found it wise to get their vehicles filled up with fuel tendering old currency notes. The government also allowed electricity, water and BSNL telephone bills to be paid up in old currency notes. This saw these utility bodies going cash rich as people did not let this opportunity go in vain. Even the defaulters came forward to clear the arrears which were in huge quantum.

Toll exemption hit the road developers

There were liquidity woes amongst road developers as the government exempted tolls to avoid traffic jams on highways. The loss of revenue at unchanged level of expenses set in liquidity crunch for those road developers who were amidst other road projects.

Milk economy severely impacted   

The dearth of cash in the economy has affectedImpact of Demonetisation 1 the trucking industry resulting in negative impact on transportation of goods like milk and related products. The industry witnessed problems at distributor and retailer levels that operate in cash. It is estimated that the milk economy was affected by about 50%. Similar was the case with other supplies like vegetables, fruits and medicines.

Heavy use of cards strained backend payment systems

There was a steep hike in debit/credit card usage across India soon after the demonetization drive. During initial days, there was a 60% jump in card usage straining the backend payment networks. There was a heavy traffic in debit card transactions. Many users were first-timers. The systems slowed down due to infrequent users forgetting the passwords or being unable to follow instructions at ATMs or points of purchase machines. This forced many to abandon their purchases.

Cash crunch offsets gains from good monsoon   

After two years of agricultural slowdown, it was a period of recovery following a good monsoon and a bumper harvest. But the decision to take off higher denomination currency hit the entire scheme of things for farmers. Generally, this period in the year is marked by farmers selling their kharif harvest and saving for investment during Rabi season.  The cash crunch prohibited mandis to pay to farmers who did not accept old Rs.500 and Rs.1000 notes. The wholesalers and commission agents ran out of cash very soon. The sales of tractors, durables, agricultural inputs like seeds, fertilizers, etc., took a beating. Cement sales also witnessed a slowdown.

The hope that keeps the people going    

Despite all hardships – people seen in long queues suffer from terrible liquidity woes, burden of exchanging their hard earned money in old currency for newer ones and a sense of urgency to deposit their household savings into their bank accounts – the masses have shown resilience by-and-large. They sImpact of Demonetisationeemed to cooperate with already exhausted and overworked bank employees, who toiled for long hours to ease out the chaos and havoc this sudden government order brought in. There is a hope and a fair expectation that there is a bright light at the other end of the tunnel. Corruption and hoarding of unaccounted-for money affects people at large directly or indirectly. Money stashed evading taxes and through high value bribes is after all people’s property. It creates divides and disparities. With a single stroke, all that money is gone. It is a welcome move for most people. They hope that beginning afresh and introducing allied steps like curbing higher value cash transactions and moving towards a cashless society will benefit them and nation in a big way.

Whether the future impact of this drive will be positive or it might turn out to be a debacle is yet to be seen. However, there are many differing views by experts about how demonetisation might impact various economic parameters and sectors.

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