As the government and a largely united opposition slugged it out in Parliament on Wednesday, employment-intensive sectors’ demonetisation pains have aggravated and market participants were in the throes of avoiding disruptions in the supply chains of essentials. While over Rs 4 lakh crore fresh deposits since November 10 have improved banks’ liquidity and boosted chances of interest rate cuts (SBI reduced deposit rates by 15 basis points on Wednesday), analysts including rating agency Moody’s warned about a sharp decline in deposits once the cash withdrawal norms ease.
Economists agreed that inflation could come down in the short term but remained concerned that a contraction in farm production during the rabi season could return inflationary pressures. Rabi sowing so far has been brisk but farmers have begun to complain of cash crunch and inability to purchase fertilisers.
The government and banks remained on toes: 1 lakh ATMs, half of the total, would start dispensing new Rs 500 and Rs 2,000 notes in a week, officials said here, adding, indelible ink was being airlifted to big cities to check black money syndicates crowding out others at bank counters.
However, there is indeed a mismatch between what the government claims of the situation on the ground and people’s experience of them. “We have started getting the new Rs 500 notes as of today morning, albeit in small numbers. Most of our ATMs are still down, only around 10-15% of them are up. Our stock of Rs 100 notes, which is what most people want, is running out very fast and we need to get more from the RBI,” said Sumant Kathpalia, country head – consumer bank at IndusInd Bank. Kishor Kharat, MD & CEO, IDBI Bank, said:“The issue was supply of notes which has improved from Wednesday but considering the demand, there should be a consistency in supply of currency notes.”
HDFC chairman Deepak Parekh, who wholeheartedly welcomed the demonetisation move, however, was on the same page with many analysts who saw a drop in secondary market for real estate, given its high black money content and reliance on cash transactions. CARE Ratings wrote: “Reduced prices, lower demand and difficulty in monetising land may lead to cash flow mismatches for the developers, which may lead to (their) stressed liquidity of developers and delays in the ongoing projects. These problems will persist in the medium term. Overall, the property prices are headed for a drop by at least 10-15% as a result of the demonetisation move. The impact on the high-end housing segment can be more as the involvement of cash transactions in this segment is higher.”
Bank of America Merrill Lynch said in a report released on Wednesday that the move would lead to disruptions in the wholesale channel, which accounts for almost 40% of the market. They added that it might lead to an increase in their receivables, or goods and services sold on credit. According to an FE analysis, receivables of consumer-focused BSE firms ranges ranges from 1-2 to even 100% of their sales, proof that high receivables could disrupt their working capital management and in turn hit profitability.
On their part many businesses have made themselves more flexible to retain consumers. Moperators like Bharti and Vodafone, for instance, have extended bill payment for post-paid customers by three days. For the pre-paid category, they are offering talk-time loans which can be at next recharge.
Mining, textiles and garments, leather and gems and jewellery segments–all employment-intensive– are hit the most by the currency crunch. A fifth of 3.2 crore textile workers, a quarter of 2.5 lakh employed in leather sector and a fifth of jewellery workers have not been paid for many days. The construction industry, including the national highways have so far stayed afloat. However, toll revenues of developers have taken a hit as the government suspended collections. The loss of toll revenues for around 115 highway projects, according to ICRA, has been in the range of Rs 460 crore for the last 10 days, ICRA said on Wednesday. Gold and jewellery establishments remained shit in national capital for the 6th day on Wednesday after the Income-Tax department carried out surveys following reports of alleged profiteering and efforts at tax evasion.
Agriculture Produce Market Committee (APMCs) markets in Nashik region on Wednesday decided to resume onion auctions from Thursday after remaining shut for over 10 days. Lasalgaon, the largest wholesale market for onion in the country, will restart operations from November 18. At Delhi’s Azadpur mandi, the country’s largest, demonitisation of high-value bank notes has resulted in a 20% drop in arrival of fruits and vegetables, but the prices of these items and milk haven’t yet seen any spike. However, the Fertiliser Association of India wrote to the finace minister Arun Jaitley demanding that farmers be allowed to use old currency to buy fertilisers, the sales of which have taken a beating.
According to Ashok Gulati, former chairman of the commission of agricultural cost and prices (CACP), farmers were facing “marginal difficulties.” Rrabi sowing and supply lines for fruits, vegetables and milk haven’t been disrupted, nor are there any abnormal spike in prices of essential items,” he said. However, Pronab Sen, former chairman of the National Statistical Commission, told FE: “Inflation (which fell to a 14-month low of 4.2% in October) could come down in the short term. We may see a contraction in farm production during the rabi season, in which case, inflationary pressure will be back. And if rabi sowing remains sub-normal this year, farm commodity prices may start to react even before April (when the harvesting of Rabi crops usually begins).” Although the government can offload wheat and rice from the official reserves to ease supplies if required, adequate availability of vegetables and pulses would be a key challenge, Sen added.
While the de-monetisation drove up gold imports temporarily, demand outlook remains weak as key rural areas face cash crunch. As the debate on demonetisation raged across the nation, Jaitley on Wednesday changed his facebook cover photo to state that “India cannot afford to live with black money any longer. Honesty, integrity and ethical conduct are requirements of India’s development.” In the Rajya Sabha, congress leader and former commerce minister Anand Sharma said: “Demonetisation is ill-timed and ill-conceived..it has unleashed economic anarchy and benefited only a few.”