3 years of demonetisation: Economic Slowdown & Loss of Earnings for Unorganised Sectors, Finds Survey
It has been three years since the Rs500 and Rs1,000 currency notes were demonetised to curb black money and fresh notes of Rs500 and Rs2,000 were released.
 
After that, the Government has taken several measures to promote digital transactions but according to feedback from people via LocalCircles survey, though digital transactions are increasing year over year, a large number of people still prefer cash transactions over digital transactions.
 
 
LocalCircles conducted a pan India survey to check how consumers are conducting transactions and if they feel that demonetisation had brought any positive changes for the country, which received over 50,000 responses from across India. The first question asked citizens how many of their monthly purchases on an average over the last 12 months have been without a receipt. About 39% said 5-25%, 29% said 25-50% and 27% said 50-100%. 
 
 
The Rs2,000-rupee note has made it easier for people to keep cash in stock. The next question asked people when they purchased a property in the last 12 months, how did they pay for the transaction. Around 33% said they paid the full amount by e-payment or cheque while 10% said they paid under 25% in cash and rest via e-payment or cheque. Almost 57% said they paid 25-50% in cash and rest via e-payment or cheque.
 
 
An important goal of demonetisation was to reduce the use of cash in transactions and encourage people to pay using non-cash modes, but the use of cash in the Indian economy does not seem to be reducing. When asked for which category of purchases have they paid the most amount in cash (without receipt) in the last 12 months, 31% said salaries of domestic staff, 36% said groceries, 5% said discretionary purchases and eating out and 7% said property, rent & home repairs. About 1% each said jewellery and used vehicles while 7% said they used cash to pay bribes and 12% said they did not make any purchases in cash.
 
 
People were asked that three years after demonetisation, what do they think was its top benefit. Around 21% said it reduced black money in the economy and 12% said it increased direct tax collections. About 42% said it brought a large number of evaders in the tax net while 25% felt demonetisation had no benefits at all.
 
 
When asked about the negative impacts of demonetisation, 32% said it was loss of earnings for many unorganised sector workers and 2% said it was sizable migration of labour to villages & lower rural income. Around 33% said the biggest negative impact of demonetisation is economic slowdown while 28% feel it had no negative impact. It has also been reported that the amount of fake currency seized in the last 3 years has considerable shot up when compared to the pre-demonetisation times.
 
 
The final question asked what should be the one move that the Government should implement immediately to further reduce black money in India. About 29% said linking of all property ownership to Aadhaar should be made mandatory and 11% said Rs2,000 note should immediately be demonetised. Around 5% said a 2% transaction tax should be levied on all cash transactions above Rs10,000 while 6% said detailed scrutiny should be done of all individuals with a Swiss Bank account.
 
Nearly 42% said disclosure of all assets of all ministers and government employees and their families should be made mandatory.
 
 
Comparison of key data points 2018 to 2019 
 
LocalCircles says it was also able to draw a comparison between the responses received on the demonetisation survey in 2019 as well as 2018. The comparison shows that the percentage of citizens using cash as the primary mode of transaction reduces over 30% from 2018 to 2019.
 
 
Citizens also admitted to using cash as the primary component in property buying, rose from 2018 to 2019. This may be an indication that the use of black money is now increasing in property transactions.
 
 
The comparison of the two years also shows that the highest number of citizens continue to believe that expansion of the tax net has been the top benefit of demonetisation.
 
 
It was widely speculated that demonetisation resulted in a reduction in the economic growth rate of the country, with many reports calling these speculations baseless. On the other hand, India’s fight against black money received a major boost with Switzerland’s Federal Tax Authority proving information on financial accounts held by Indians under the framework of global standards on AEOI (Automatic Exchange of Information), with the next exchange scheduled to happen in September 2020. It remains to be seen if the use of cash in India reduces in the next few years as newer modes of digital transactions continue to become popular with the Indians.
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    COMMENTS

    Aditya G

    2 weeks ago

    Digital transaction is the future (blockchains is another story altogether). It would be foolish to think otherwise. Whatever it is, we have to prepare for a future that will be 'drastically different' from today. It's only a matter of time, maybe within a decade(?), before digital currency gains mass acceptance. Besides, I no longer have a big fat bulging purse poking my derriere every time I sit down.

    Moody's Says India Headed for Debt Trap And Recessionary Phase; Cuts Outlook to Negative from Stable

    Moody's Investors Service has downgraded its outlook on India's ratings to "negative" from "stable", on increasing risks of lower economic growth than the past and reflecting lower government effectiveness at addressing long-standing economic and institutional weaknesses.

    "While government measures to support the economy should help to reduce the depth and duration of India's growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions (NBFIs), have increased the probability of a more entrenched slowdown. Moreover, the prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base, have diminished. If nominal GDP growth does not return to high rates, we expect that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden," Moody's says in a release.

    Moody's Investors Service has changed the outlook on its India ratings to negative from stable while keeping the foreign-currency and local-currency long-term issuer ratings unchanged at Baa2. It says, "The Baa2 rating balances the country's credit strengths including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges including high government debt, weak social and physical infrastructure and a fragile financial sector. India's long-term foreign-currency bond and bank deposit ceilings remain unchanged at Baa1 and Baa2, respectively."
    The government responded to the downgrading saying India continues to be among the fastest growing major economies in the world, India's relative standing remains unaffected.

    "India continues to be among the fastest growing major economies in the world, India's relative standing remains unaffected. IMF in their latest World Economic Outlook has stated that Indian Economy is set to grow at 6.1% in 2019, picking up to 7 % in 2020. As India's potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continue to underline a positive outlook on India," the government says in a release.

    According to the ratings agency, the outlook on India partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden from already high levels.

    At a six year low, India's economy grew only 5% year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.

    The international ratings agency said it estimates that the country's growth slowdown is in part long-lasting while backing its other ratings for India.

    In recent months the Indian government has responded to the growth slowdown with a series of measures aimed at stimulating domestic demand. These include income support to farmers and low-income households, help for stressed industries including autos and NBFIs, and a broad corporate tax cut that reduced the base rate to 22% from 30%. Meanwhile, the Reserve Bank of India (RBI) has repeatedly cut the policy rate, by a cumulative 135 basis points since February 2019.

    Although Moody's says it expects these measures to provide support to the economy, they are unlikely to restore productivity and real GDP growth to previous rates. "Moreover, the multiple facets of the slowdown and structural weaknesses in the real economy and financial system that it reflects point to further downside risks to our expectations that real and nominal GDP growth will rise towards 6.6% and 11%, respectively over the next year. In turn, a prolonged period of slower economic growth would dampen income growth and the pace of improvements in living standards, and potentially constrain the policy options to drive sustained high investment growth over the medium-to long term," it added.

    According to the Indian government release, IMF in their latest World Economic Outlook has stated that Indian Economy is set to grow at 6.1% in 2019, picking up to 7% in 2020.

    As India's potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continue to underline a positive outlook on India, the Finance Ministry said.

    The Government has undertaken a series of financial sector and other reforms to strengthen the economy as a whole. Government of India has also proactively taken policy decisions in response to the global slowdown. These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments, it said, adding, the fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term.

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    India's manufacturing PMI slips to 2-year low in October
    The cooling of manufacturing growth in India continued last month as the headline seasonally adjusted IHS Markit India Manufacturing PMI fell from 51.4 in September to a two-year low of 50.6 in October, research firm IHS Markit said on Friday.
     
    Both factory orders and production rose at the weakest rate for two years. Besides, job creation softened to a six-month low, an IHS Markit statement said.
     
    Challenging market conditions coupled with delayed client payment, dampened business confidence in October. 
     
    The research firm, however, noted that the lower demand for raw materials and semi-finished items led to a fall in overall cost burdens, the first in over four years.
     
    IHS Markit said that companies were reluctant to hold excess stock and lowered input buying as business confidence slipped to its lowest level in over two-and-a-half years.
     
    "In another sign of subdued growth conditions, input costs declined for the first time in over four years," IHS Markit said.
     
    However, "growth was restored in capital goods and softened in the consumer goods category", it added. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    COMMENTS

    Ramesh Poapt

    3 weeks ago

    it is usual...no worry..

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