The first signs of a partial collapse in money economy began to show this morning when the largest association of small and medium traders in India, the Confederation of All India Traders (CAIT), gave a distress call to the union government to allow the retail traders to accept Rs 500 and Rs 1,000 notes.
Citing that small businesses and retail traders had been badly affected by the Modi government’s decision to withdraw the top two currency denominations, it said that the disruption of money flow had affected supplies of essential commodities. That, in turn, had impacted distributors of fast-moving consumer goods and perishable commodities like vegetables and fruits.
In its demand to the finance minister Arun Jaitley, CAIT has said that since the retailers – who are placed at the bottom of the business chain – should be given the authority to accept at least one higher denomination note from the consumer if the buyer is ready to provide his/her KYC details. This exemption, according to CAIT, would improve cash flow in the markets and provide immediate relief to a large section of traders.
The CAIT said that commercial markets all over the country have been deserted ever since the decision was announced which has had a direct bearing on the lives of farmers and daily wage labourers.
“Consumer footfall in the markets was very less in comparison to normal days. Traders, particularly the retailers had slack business activities. Salesmen at the retail counters were seen sitting idle. Rural retailers from talukas and other moffussil areas who generally visit the nearby district markets for procurement of goods had to remain at their respective places for want of sufficient funds of acceptable denomination,” a statement issued by CAIT said.
“Agricultural produce market committees and mandis (wholesale markets where farmers sell their produce) across the country had very less transactions as farmers who had brought their produce for sale in the market had to face a nightmare when they could not get money against his saleable produce… The logistic sector came to a standstill as the truck drivers had only high denomination notes which caused blocks in smooth movement of transportation,” CAIT statement further said.
A majority of CAIT members are also BJP supporters and sympathisers. In the past, the BJP has stood firmly with the association’s demand for scrapping foreign direct investment in the retail sector, which the former United Progressive Alliance government had introduced but could not implement. A large section of CAIT members are small and medium traders who have traditionally been supporters of the saffron party.
Therefore, the CAIT’s voice against the Modi government’s decision is being read as a dissent from within, resulting, as it were, from the negative mood among traders of late. When the Sangh parivar called for a boycott of Chinese goods in October, a large section of small and medium traders were adversely affected as they had already made bulk purchases of goods that are generally bought and sold in the festive Dussehra and Diwali season.
CAIT, despite welcoming the decision, had said that the boycott would reduce Diwali sales by up to 30% as compared to last year. The money flow that is being affected because of the latest policy decision has therefore come as an added wound for many traders.
U-turn by CAIT
It is important to note that the CAIT had yesterday welcomed Modi government’s decision to ban Rs 500 and Rs 1,000 notes and had hailed it as “the greatest attack on black money taken by any government so far”. In a press release issues by the association, it said, “Prime minister deserves all compliments for such a bold step. Of course, for some time the markets will be under turmoil since it will greatly affect capital liquidity in the market but in the long run it will redefine Indian economy with transparency as its basic fundamental.”
Not that the CAIT was unaware of the full impact of the decision on its members since it went on to say that “Consumer will certainly not visit markets for few days because of very limited quantity of small denomination currency but over a period of time it is hoped that situation will become normal.”
It is, however, believed that the association was forced to change its position partially after its members started to experience the true impact of the decision over the last two days and complained about the same.
“Most of us do small and medium cash transactions through the day. We have six crore members who deal with Rs 1,000 to a lakh every day. But since yesterday, the business has come to a stop. The retailers are unable to pay the distributors, the distributors do not have enough small denominations to pay the producers and the consumer does not have enough currency to pay to the retailer. This has affected the chain completely,” Praveen Khandelwal, the general secretary of CAIT told The Wire.
“Therefore, we are demanding that the retailers should be exempted from the rule. The government can allow them to take 500 and 1,000 rupee notes if the consumer is ready to fill up a KYC form, exactly the same procedure being followed in the banks,” he said.
Khandelwal further added that the businesses simply could not run in the present situation. “Since the business transactions of small traders is not much, the share of digital transactions is not substantial. Almost 70% of our payments come in higher denominations. The government may take a lot of time to replenish banks with new notes. Right now the banks are concentrating only on exchange of old currency. Normal functioning of banks has taken a hit because of the policy changes. That is why there should be some remedial measures for us. Since the retailer provides the last mile connectivity for all essential goods, it is important that he is allowed to accept old currency. Or else, we stand to lose a lot because of the economic churn.”
The demand of the CAIT may be a valid one since although the government has fixed deadlines for people to exchange old notes, it cannot set any date for attaining normal liquidity in markets because of various constraints. Its ability to replenish banks with new currency notes and ease the withdrawal amounts would be crucial factors in stabilising the distribution markets.
Keeping this in mind, the CAIT has requested the finance minister to remove all caps on amounts withdrawn from current and cash credit bank accounts to improve the delayed contract payments that may become a huge problem in days to come.