The Costs of Demonetisation: Textile Industry Hit; Power Demand Declines

A daily round-up on the human impact of demonetisation.

Textile industry in India has been hit by the cash crunch post demonetisation. Credit: Reuters/Andrew Biraj

Textile industry in India has been hit by the cash crunch post demonetisation. Credit: Reuters/Andrew Biraj

Altering daily lives

While one of the few objectives of demonetisation was to initiate transparency in the economy, a report in Business Standard claims how the move has led to the creation of a parallel one. As wages become staggered, moneylenders are growing in stature as people are seeking their help for buying goods for daily use. The cash crunch is forcing people to look for informal avenues with a large part of the economy now going unchecked.

Coupled with a bad harvest, the farmers of Andhra Pradesh and Telangana now are affected by demonetisation as well. According to a Firstpost report on the same, Jagarlamudi Anil Babu, a cotton farmer from Prakasam district in Andhra Pradesh said, “My cotton stock withered at the market yard as traders said they had no cash to pay and offered cheques.” Farmers are claiming that the banks would rather adjust cheques towards loans and interest than disburse cash.

According to a Livemint report, the cash crunch and the resultant shock to the rural economy are threatening to undo the relief from the monsoon rains and the prospect of a kharif harvest. The reduced cash flow combined with a slowdown in economic activity (reducing non-farm incomes), has led to cuts in farmer income estimates for the current fiscal year.

“Women who have taken loans from micro-finance institutions have been hit by demonetisation,” said Mariam Dhawale, the newly elected general secretary of the All-India Democratic Women’s Association, the women’s wing of the CPI(M). Since these institutions work with groups of 15-20 women, borrowers have been unable to maintain the balance of the loans owing to the cash crunch.

According to The Economic Times, the push for digitisation is opening up more avenues for cyber-criminals. With the lack of proper access and laws, cyber-crimes will be at an all-time high if the government doesn’t take the right steps to curb the problem.

Power demand dipping

Due to the decline in industrial activity along with the cash crunch in the aftermath of demonetisation, power demand is set to fall drastically. As several sectors are hit by lower demand, the output for the power industry is decreasing.

Stagnant power demand forced 30 power-generating companies to reduce their coal offtake, even below their lowest permissible threshold under the respective fuel supply agreements with Coal India. “Small enterprises are facing the brunt of cash crunch and labour shortage,” said a power sector expert, who did not wish to be identified, Business Standard reported.

Textiles companies struggling

Accounting for a whopping Rs 23,000 crore per year in exports, Tirupur and Tamil Nadu is home to a vibrant textile industry. Since demonetisation, town’s revenue from retail and wage payments have been hit. According to a report by CNBC TV18, the sector accounts for 7 lakh jobs. The wages of textile workers have been affected and textile companies are struggling to keep up with the impact of the cash crunch and are looking for methods to adapt to it.

Banks facing a crisis

According to the Hindustan Times, loan growth is set to be at a 54-year low. Loan growth is a major factor in determining the economic activity of a country. With 86% of the cash currency invalidated from November 8 and withdrawal limits imposed on the public, the cash crunch and uncertainty in the market is forcing individuals and smaller borrowers to postpone their spending and borrowing plans.

The demonetisation announcement has led to an unprecedented amount of cash flowing into the banks. However, the slowing of economic activity and less liquidity with the public and firms is hampering the growth of start-ups. The liquidity crunch will also delay outstanding investment projects, and might actually lead to an increase in non-performing assets, as small and medium-sized enterprises are being unable to repay loans, according to The Financial Express.

Real estate down

The demonetisation effect that has brought down revenue collection in Karnataka has set alarm bells ringing. The collection from the Department of Stamps and Registration from November till date has fallen short by nearly 27%. While real estate has taken a hit, the Commercial Taxes Department – which will get a final data on tax collection during November only in January – is also estimating a loss of about 8%, The Hindu reported.

Going beyond India

Demonetisation has impacted one of Bhutan’s biggest exports to India in this season – oranges. According to The Economic Times, the expectations of orange growers in the Himalayan state had risen as they’d seen a good harvest. However, since the note ban, the orange industry is taking a hit as reduced demand is being generated from this side of the border.

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