Effects of note ban are disastrous
There are two issues involved here — one the reasons behind this decision, and the second whether this pain will give us some good results or not. Let’s get into a little background about India’s cash outlook. I am giving you figures which have been sourced from several reports by experts. As a percentage of GDP, the value of notes and coins in circulation in the Indian economy is 12.2 per cent, which is higher than countries like Russia, Brazil and Mexico. The ratio of money held in notes and coins to the amount held in demand deposits and savings account in India is a staggering 51 per cent, well above several countries. It is also a fact that fewer than 45 per cent of Indians above the age of 15 have used a bank account. Less than 12 per cent have ever used any kind of non-cash payment instrument.
So in a country like India, which is extremely cash-intensive, squeezing out 86 per cent of the currency in circulation is bad economics.
The reasons that have been given were counterfeit currency, terror funding, black money and finally going cashless.
Counterfeit currency cannot be the reason as per reports a secret study by intelligence agencies along with the Indian Statistical Institute has revealed that `400 crore fake currency is in circulation. So for `400 crores, should we junk about `15 lakh crores currency? The argument does not much ice. Now terror funding — we saw that terrorists who were killed by our security forces had new `2,000 notes, so that argument has also failed. Next was black money, we have seen all reports which have emanated on black money, they say the cash component of black money is only six per cent rest all is stashed in bullion, real estate, etc. Finally we come to the cashless reason.
As per reports, India is a fiercely competitive telecommunications market, possesses well-developed financial markets and is a leading exporter of technology services. But less than three per cent of Indians have used a mobile phone to receive a payment, compared to 60 per cent Kenyans and 11 per cent Nigerians. Also, cashless payments are much more sizeable from a value perspective rather than a volume perspective in India. The reason is mainly access and connectivity, which are a big hindrance. Now before solving these problems, if we rush into a cashless mode, it is like putting the cart before the horse.
According to reports coming from across the country, small traders and businesses have been severely hit. Let’s look at the figures: two-wheeler sales have dipped, IIP manufacturing has dipped, sales of HCV heavy commercial vehicles have dipped and the freight traffic of railways has also gone down. The impact of all this is India’s economy is projected to grow at 6.5 per cent instead of the 7.8 per cent projected by economists earlier. Other projections coming in are certainly not flattering for the government. Moody’s investor’s services say asset quality at Indian banks reeling under a pile of bad loans will weaken. Small businesses, the biggest creator of jobs, are estimated to forfeit transactions worth $9 billion. These are alarming projections.
Let’s also look at small industries. The shoe industry in Agra is in tatters, and there have been major layoffs. Similar instances are being reported from the lock industry in Aligarh, hosiery industry in Ludhiana and Tirupur in Tamil Nadu. Farmers are equally hit because of cash restrictions — sowing of wheat has not taken place. In Nagpur, oranges are not being picked up, and there is a serious crisis. The government itself is admitting that in two quarters there will be problems. In reality, no economist has praised this effort, and the effects are disastrous on the economy. Sadly, there is going to be no gain after this pain. Abhishek Dutt is spokesperson, Congress Delhi Shadow Team
The shoe industry in Agra is in tatters... Similar instances are being reported from the lock industry in Aligarh, hosiery industry in Ludhiana and Tirupur in Tamil Nadu. Farmers are equally hit because of cash restrictions...