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The sudden announcement of demonetisation by Prime Minister Narendra Modi has put the common people and industry/ trade practitioners in quandary about its obvious impact on the country’s economy. The immediate and long-term economic impact of this unprecedented step is now being assessed by economists and experts with a forward looking notion.
As soon as the note ban was announced, the Ministry of Highways and Roads sprang into action suspending payment of toll fees at toll plazas on all national highways till November 11, but vehicles continued to face problems on state highways and expressways. “A transporter needs between `30,000 -40,000 for a longroute trip. It has become extremely difficult for logistics companies to plan long-route journey. Almost 80 per cent of our transporters are sitting at home,” complained Chaudhary Vedpal Singh, president of Noida Transporters Association. A major impact is seen in the road transport sector reports the All India Motor Transport Congress, with 70 per cent of the vehicles of their members already off the roads. The sector has taken a beating as 80 per cent of the business is cash-based.
But the government is leaving no stone unturned to restore normalcy. “We are trying to connect all toll plazas with e-governance so that people will not have to stop at toll points for paying cash and can instead do it online,” said Nitin Gadkari, Minister for road transport, highways and shipping. “Had the government not suspended toll collection, prices of commodities would have quadrupled due to disruption in their flow,” revealed Ramesh Agarwal, Chairman, Agarwal Packers & Movers.
The impact has not been the same across all sectors. Anil Devli, CEO, INSA says there has not been any significant impact on the shipping sector as all transactions are done through banks. Some minor impact has been on the daily wage stevedoring operations for loading/unloading and road transport companies.
As regard to the impact on customs brokerage and freight forwarding business, FFFAI is foreseeing very positive results. “As of now we have not seen any visible and negative impact of demonetisation on customs brokerage/freight forwarding business. Cash flow in any case with the custom brokers or freight forwarders does not impact much except a very few cases. In our trade majorly all charges, statutory or shipping line or airline charges, are paid by NIFT, RTGS, Cheque etc. Various associations also worked out with the airlines and custodians by cheque payment,” said S Ramakrishna, Vice Chairman, FFFAI.
Ramakrishna further opined that demonetisation will bring in more transparency and all transactions would be through banking channels, which means lesser direct/indirect taxes. However, a major issue is the payment to unorganised sector. The government should give adequate facilities to have the payment through custodian for labour, packing etc within the port, ICDs and transporter should switch to using petro cards.
The e-commerce industry has welcomed the move even though demonitisation has impacted the cash on delivery business. Note ban will pave the way for digital payments and in transforming the economy. For instance, cash on delivery orders for Shopclues declined by 30 per cent but prepaid orders went up by 15-20 per cent. But looking at the other side of the coin, wholesale trade accounts for 40 per cent of the sales to the consumer firms and depends on cash transactions only. This channel will witness liquidity constraints and supply chain disruption.
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