Indian economy suffering after note ban: New York Times
The Indian economy is suffering following demonetisation and a shortage of cash made life increasingly difficult for Indians, the New York Times has said.
 
Saying the scrapping of Rs 500 and Rs 1,000 notes "was atrociously planned and executed", the daily said in an editorial on Monday that there was little evidence that it had checked corruption.
 
"Two months after the Indian government abruptly decided to swap the most widely used currency notes for new bills, the economy is suffering," the Times said. 
 
"The manufacturing sector is contracting; real estate and car sales are down; and farm workers, shopkeepers and other Indians report that a shortage of cash has made life increasingly difficult," it said.
 
Prime Minister Narendra Modi announced on November 8 that the high value currency that made up 86 per cent of all currency in circulation could no longer be used in most transactions and would be replaced by new 500 and 2,000 rupee notes.
 
Modi said this was necessary to combat corruption, black money and terror funding.
 
"But the swap was atrociously planned and executed. Indians had to line up for hours outside banks to deposit and withdraw cash," the daily noted. 
 
"New notes have been in short supply because the government did not print enough of them in advance. The cash crunch has been worst in small towns and rural areas. 
 
"The amount of cash in circulation fell by nearly half, from 17.7 trillion rupees ($260 billion) on November 4 to 9.2 trillion ($135 billion) on December 23, according to the Reserve Bank of India.
 
"No economy can lose that much currency in a few weeks without creating major hardship - certainly not one like that of India, where cash is used for about 98 per cent of consumer transactions by volume. 
 
"And while a growing number of people have debit cards and cellphones that can be used to transfer money, most merchants are not set up to accept such electronic payments," the Times said.
 
The editorial said "there is little evidence that the currency swap has succeeded in combating corruption or that it will forestall future bad behaviour once more cash becomes available". 
 
The government had said that people bringing more than Rs 250,000 of the old notes to banks would have to show that they had paid taxes owed on the money. 
 
"Because of those rules, officials had expected that a lot of black money would never make it back to banks. 
 
"Yet news outlets are reporting that Indians have successfully deposited the vast majority of old notes. That suggests that either there wasn't as much black money out there as the government claimed or that tax cheats found a way to deposit their hoards of cash without attracting the government's attention, perhaps with the help of money launderers.
 
"Many Indians have said that they are willing to tolerate some pain in the fight against corruption. 
 
"But their patience won't last if the cash crunch continues and the swap does little to reduce corruption and tax evasion, as many economists predict," the daily said.
 
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

    Govinda Warrier

    3 years ago

    It is really intriguing that enlightened media is making observations like: ""Yet news outlets are reporting that Indians have successfully deposited the vast majority of old notes. That suggests that either there wasn't as much black money out there as the government claimed or that tax cheats found a way to deposit their hoards of cash without attracting the government's attention, perhaps with the help of money launderers." Perhaps, in US bank deposits are net of tax payable. If that is the case, India is far behind. There is no TDS when a deposit is made.

    Anil Kumar

    3 years ago

    I partly agree with NYT observations, but their is other side of coin e.g. hawala, fake currency which was feed for terrorism etc. But, of course people are facing problems due to demonitisation.

    SRINIVAS SHENOY

    3 years ago

    I hope the government is firm in its resolve to root out corruption and black money, and fight against corruption and black money is not just a political gimmick. I feel it should set
    an example to the citizens, by cleaning its stable first.

    India needs to guard against technological disruption in manufacturing
    The most recent Purchasing Manager's Index (PMI) reflects a contraction in the manufacturing activity in India in December.
     
    Most domestic and international analysts and experts are looking at it from the viewpoint of the move of the government which essentially removed 86 per cent of the currency as legal tender. The unprecedented move does seem to have had an adverse impact on the manufacturing and investment activity. Its benefits, at best, are uncertain at present though the government has been lauding the move from the viewpoint of recovering tax from income tax raids as well as the ability to levy tax on declared income beyond a threshold.
     
    Another positive the government has been vocal about is the change expected in behaviour of people to a less-cash economy. The All India Manufacturers' Organisation has, meanwhile, issued a study which shows a 50 percent dip in revenues and 35 percent job losses for SMEs. The government must carefully look into these figures.
     
    Over the years, if one looks at the performance of the manufacturing sector, it has not been among the best performers. There are a number of reasons for this. A recent report by the Institute for Competitiveness, an international think-tank, looks at some of these aspects as well as compiles an index of manufacturing competitiveness for Indian states. The report notes that the share of manufacturing has been stagnant at roughly 15 per cent of GDP for the past 30 years in contrast to services, which have grown, and agriculture, which has shrunk during this period. The report brings out four essential points on India's manufacturing competitiveness.
     
    First, it traces the development of the sector and notes that the possible reason for its non-performance is due to crucial reforms not happening. It notes that India's initial market opening process did include reforms in the capital markets and FDI into distinct sectors. However, market reforms initially remained untouched. These included labour legislation and laws pertaining to land markets. Even today, they remain restrictive for investment and competitiveness to grow.
     
    The reforms largely helped in the development of the service industry but could not enable the rise of the manufacturing industry, which, in addition, required critical linkages like electricity, water and reduction in burdensome regulations. However, these were not initially available, which resulted in services taking off while manufacturing lagged. Thus, only some states are good in manufacturing.
     
    The second point is the important locations for manufacturing. The best states in this regard are Maharashtra, Tamil Nadu and Gujarat, that can be thought to be at the forefront of manufacturing competitiveness. They are also good in industrial clusters and SMEs. The northeastern states and states like Bihar and Jharkhand perform relatively poorly on the composite index. The reasons for these are many and complex, but their inability to provide a stable environment for investment in manufacturing to take place is the primary factor. 
     
    Third, another major factor for India to consider over the medium to long term is automation. Most Indian businessmen and policymakers are not according it the attention automation and the rise of the robots should be getting. The need for paying attention to this is simple. The Make in India national manufacturing policy aims to create 100 million additional jobs by 2022. Even if the manufacturing sector has a multiplier of 5, generating 20 million jobs is not easy. And that too in an environment where automation is fast replacing manual jobs.
     
    China's manufacturing workforce is under tremendous stress as technological innovation disrupts manual jobs. India needs to adapt to this changing reality and adjust its manufacturing sector considering the changes under way at the technological level globally.
     
    Finally, how does one create a nation that has manufacturing prowess?
    There are three or four important points which should be undertaken by governments as well as corporations. First, factoring market reforms even at the state level will go a long way in boosting manufacturing competitiveness. Some states have taken the lead; others need to follow. Second, 8-10 states should take the leadership role and establish collaborations with countries on furthering the Make in India initiative.
     
    Third, a branding and mindset reset is needed to change India's image from a low-cost re-engineering country to one which is known for quality, excellence and innovation. Fourth, skill shortage is a major concern for the industry at present. The need for formal skill training can hardly be over emphasised in the wake of automation.
     
    Finally, the focus of governments in India should be on a manufacturing competitiveness ecosystem which thinks about the meaningful interactions between humans, capital and factories for productive employment. Over the years, India's policymakers need to be vigilant about the technological disruption that could severely impact manufacturing and job growth in India and align their policies accordingly.
     
    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 Vaidya

    3 years ago

    As a person who has worked in the manufacturing industry for the last 3 decades I can easily relate this article. Sadly, our policy makers are sleeping and will probably wake up too late. Another development is the lack of commitment & interest of younger generation in manufacturing sector career. They will sit idle rather than learrn new skills. Schemes like NREGA only seems to kill it. Of course, the glamour of IT/ITES only adds to the problem.

    REPLY

    Awadhesh Vaish

    In Reply to Ramesh Vaidya 3 years ago

    Where are the jobs? My cousin was a star performer in Mechanical M.Tech from KIIT. Have been struggling to get a job in MFG sector for a long time now.

    Had to resort to software coding in a reputed software firm now.

    Reforms in India to boost medium term growth: Moody's
    Global credit rating agency Moody's on Tuesday said the ongoing reforms in India are likely to boost medium-term growth while the overall outlook for creditworthiness of sovereigns in Asia Pacific is stable.
     
    In a statement, Moody's Investors Service said the capacity of governments to implement measures and the effectiveness of policies in achieving the respective governments' objectives would shape the sovereigns' credit profiles over the coming year.
     
    "In particular, in India (Baa3 positive), Indonesia (Baa3 stable) and the Philippines (Baa2 stable), ongoing implementation of reforms was likely to boost medium-term growth," Moody's said.
     
    Moody's analysis is contained in its just released report titled 'Sovereigns - Asia Pacific: 2017 Outlook - Stable Outlook Balances External, Political Risks Against Economic, Institutional Reforms'.
     
    In its report Moody's said it had maintained a positive outlook on India's rating in November 2016, based on its expectation that economic and institutional reforms would support continued robust growth.
     
    "Measures including relaxation of foreign investment restrictions, passage of the Goods and Services Tax, and advancement of a workable bankruptcy code have potential to stimulate private sector investment, which could lead to stable, balanced growth and gradually lower the government debt burden," Moody's said.
     
    According to Moody's beyond the short-term negative impact on growth, demonetisation has the potential to raise government revenues and provide some fiscal space to support growth if required.
     
    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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