Demonetisation – contents and discontents

January 10, 2017 5:51 pm

We take you through the opinions of some of the experts on how demonetisation has affected the business world.

The decision
On 8th November 2016, Prime Minister Narendra Modi, in an unscheduled live television address declared that the use of Rs500 and Rs1,000 notes would be invalid from the midnight, the same day. However, the legal tender of the bank denominations of Rs 5, 10, 20 and 100 would not be affected.

As per the government claims, demonetisation was an effort to stop counterfeiting of the current banknotes allegedly used for funding terrorism, as well as a crack down on black money in the country. The initial days that followed the announcement saw a severe cash shortage throughout the banks and ATMs across the country. As a result of this decision, the BSE SENSEX and NIFTY 50 stock indices crashed for the next two days.

In the wake of this decision, we spoke to some experts on the effects of demonetisation on the business world. This is what they had to say:

Demonetisation to have a positive impact
According to Brett Allard, Director of Sales & Marketing, Renishaw Metrology System Ltd, demonetisation will have a positive impact on the Indian economy. He says, “Demonetisation is a very bold but commendable step taken by Prime Minister Modi that will have a massive positive impact on Indian economy. Liquidity crunch could have an impact in the short term.” Allard further says, “In the near term, there could be pressure on GDP growth and thereby government revenues, however in the longer term they should boost tax revenues. It could also result into higher government capital expenditure or faster fiscal consolidation. A brighter side of the story for a number of foreign businesses is that it would improve the overall operating environment for doing business in India, by improving the ease and speed at which payments reach manufacturers and reducing corruption.”

Adverse effect on the sales
According to Shrinivas Shirgurkar, Managing Director, Ace Designers Limited, the decision has had an impact on the sales. He says, “The recent Demonetisation has definitely impacted sales. While the orders inflow continues to be good, machine dispatches have slowed down to some extent, particularly for the SME sectors.” Shirgurkar further points out, “The banks are unable to sanction loans in a timely manner as they are completely occupied handling the demonetisation effects. We hope this will be a short term challenge and will improve in the coming months.”

Money rotation likely possible
Voicing his views on the after effects of demonetisation, Nitin Wakode, Associate Vice President, Onward Technologies Ltd feels that Demonetisation certainly has had an impact on each and every industry due to drop in consumption and purchases. He says, “Machining and cutting industry do not have direct impact considering B2B business. It might have impact if the situation continues to remain same longer or customers do not adopt digital money. But in long run we could see lot of money rotation as the people might prefer to spend than to save and pay tax or face more problems. The government will surely open many infrastructure projects to boost industry and employment.”

Industry will be streamlined
Beng Chieh Quah, Head of Marketing – Asia Pacific, Faro Business Technologies India Pvt Ltd feels that the immediate and short term impact of demonetisation is the reduction in consumer spending, due to a lack of currency. He says, “The unorganised sector will be badly affected as it is heavily reliant on cash transactions. In the due course of time, the unorganised sector will be absorbed by the organised sector. The industry will eventually be streamlined, a move that will benefit the industry as a whole.”

Demonetisation to have a mixed impact

Wait and watch policy by Rigibore India
Speaking about the impact of demonetisation on the metal cutting industry, Lalit Sharma, Managing Director, Rigibore India Pvt Ltd says, “At the moment the industry is in a wait and watch mode. The consumer spending has seen a slowdown but in the long run, we feel demonetisation should not have much the impact on the industry.” He further adds, “ In fact, the demonetisation drive and the cash mobilization in the banks should moderate the interest rates by a fair bit going forward. This will help re-energise spending and investments.”

Optimistic approach by Shahajanand Laser Technology
Expressing his opinion on the recent demonetisation, Maulik Patel,Executive Director, Sahajanand Laser Technology Ltd said, “The decision Indian government took is certainly bold and commendable; however it would be too early to give the verdict to the decision. We have been seeing a decline in commercial goods consumption so far. When you observe closely, this sink is quite eminent at ground level, where job based work is being undertaken.”

He further adds, “It may also include individual fabricators as well as micro companies, those who are part of the bottom of the metal forming pyramid. This decline is inevitable reach to the higher level for sure, but if the measures are taken in favour, we can still hope for the stable upcoming quarters.”

Temporary impact on the industry
In response to the question on the effects of demonetisation on the metal cutting industry, Takahide Yoneda, GM, CNC Systems, Factory Automation and Industrial Division, Mitsubishi Electric India Pvt. Ltd said, “The demonetisation would temporarily impact the metal cutting machine manufacturing industry because of the weak investments especially by small and medium scale sectors due to the unavailability of loans and slow down in banking transactions. Anticipating a high demand again in the last quarter of this FY, the OEMs would continue the machine production by added efforts.”

Tier 3 and small companies feel the heat
According to Keshav Khurana, Executive Director, Wohlhaupter India Pvt. Ltd, the demonetisation has had not much of an effect on Wohlhaupter. He says, “It has had an impact normally on Tier 3 and few companies which run on cash and have contract labour etc. We have ourselves seen their work coming to a standstill. Even few investors are becoming cautious due to this uncertain situation.”

Minimal impact on the pumps and valves industry
According to Shankar Rajaram, Vice President – Sales (Industry), Grundfos India, planning will come to the rescue of the industry. “As the industry sector is largely structured and pump forms a part of CapEx planning,the demonetization impact will be minimal,” he says.

Deep impact on the secondary sale
Swapan Mitra , Business Head, Industry Sector, Kirloskar Brothers Limited states that the sale of small pumps for domestic and agriculture applications, normally purchased over the counter, has been affected due to demonetisation. He says, “As most of the transactions are of smaller value and are made in cash, the sale has been affected. Thus, liquidity issues have had a deep impact on secondary sale of dealer stock business.”

He further adds, “However, the industrial pump business is not affected with this new policy as the products are higher valued. Also, in B2B setup, NEFT and through cheque payment is more like a norm.”