In a daring assault on India’s black economy, Prime Minister Narendra Modi announced demonetisation of existing Rs 500 and Rs 1,000 currency notes last week. While there is no sure measure of the black economy, most of the reports centre around 20 to 25 per cent. The reason why the prime minister chose to demonetise Rs 500 and Rs 1,000 is because the two denominations accounted for 86 per cent of all currency notes. Scrapping and replacing these with new ones would largely take care of all the black money stored in the form of cash. The impact of demonetisation on different economic variables over the short, medium and long term would be different. While gross domestic product (GDP) and currency in circulation will be hurt as an immediate consequence, in the long term, most variables will benefit. Out of the immediate impact on different sectors of the economy, retailing will mostly gain but, not surprisingly, real estate and retail jewellery – two sectors that attract a significant amount of black money – will be affected adversely.
Impact of Demonetisation on Rice industry: View by some industry experts
Mr. Rajan Aggarwal-CEO Milltec said in an article on financial surgical strike on black money by Mr. Modi that it has not only hit straight on the black money but also annihilated the fake currency in one go that shall break the linkages of terrorism and smuggling. It does not only resolve two chronicle issues at once but also boost the cash flow significantly. It provides relief to cash starved public sector banks. These banks give loans to public for their various needs. The increased cash in the system should enable better business volumes, thus resulting in higher revenues to the government in form of direct and indirect taxes. This in turn will ensure higher government spending in infrastructure etc. As a result of all this, the Gross domestic product (GDP) will increase at a higher rate.
Mr. Rajan further said that boost in cash flow, higher credit rating, lower inflation, lower interest rate; lower real estate price shall have cascading impact on economy and ultimately would be reflected in industrial growth. The Rice industry shall also be impacted favorably. In short run it may suffer on cash deals, but in the longer run it shall stream line the life of all stake holders including millers, farmers and commission agents. Improved GDP shall result into larger disposable income with ordinary person that shall augment the demand for packaged or branded rice. Improved affordability amongst consumers shall lead to price stability in Rice which will bring overall stabilizing effect in the rice milling industry. It shall also encourage the rice milling industry to adopt structured and professional approach.
Mr. Mohit Gupta, Director of Bharat Industrial Enterprise Ltd. also echoed the similar views regarding the surgical strike on black money. He added further that withrespect to rice industry in particular this step would turn out to be a milestone whereby all stake holders would benefit eventually. Praising this historic step, Mr. Mohit pointed out the anomalies of cash purchase of paddy by some miller/traders that often distorted the fair prices at all levels of business would cease to exist now. This would enhance the income of farmers who would get fair and prompt price for their produce. With cash transactions out of the way any dispute with regards to nonpayment could find redressal from the Indian courts. A huge benefit is awaiting the whole rice industry with this economic overhaul by the Modi government. Mr. Mohit’s forecast of more money coming into the banking system was corroborated by the Times of India news that the total cash deposited in banks since the announcement of the withdrawal of the old Rs 500 and Rs 1,000 notes has crossed Rs 1.5 lakh crore, according to estimates received from different banks. SBI received total cash deposits of Rs 75,945 crore and exchanged currency worth Rs 3,753 crore. Against this, there had been withdrawals of Rs 7,705 crore in currency notes of Rs 100 and Rs 2,000 until Sunday.
The rice industry expert Mr. Vijay Setia, Director, Chaman Lal Setia Exports Ltd.
welcomed this historic move by our Prime Minister terming this as revolutionary measure which will have a long term positive effect on our country’s economy. Being specific on rice industry Mr. Setia elaborated that main stake holders of the industry like Miller and the farmer would only benefit from this move as the bulk of the trade is done in white with cheques. The hoarders on the other hand who have accumulated paddy by fleecing farmers would find it difficult to dispose of their stock. Those traders/ stockist who in collusion with corrupt bureaucrats first buy rice meant for PDS and then sell in the open market would feel the jolt administered by none other than our highest office bearer Mr. Modi to rid our society of the menace of black money and rampant corruption. Mr. Setia made an interesting observation that some people were visiting various religious places to get change of lower denomination notes throughout the night. “These people have a Jugad mentality whereby they think they can do anything and get away with it, but now they would have to face the music,” added Mr. Setia jokingly. He sees the possibility of lowering of export prices in future, where the correction was long overdue, thereby making Indian exports more competitive. He is very optimistic about the future of the rice industry with this bold step.
AGM (Supply Chain & Procurement) of Adani Wlimar Ltd – Mr. Dinesh Chhatra
welcomed the move by the Prime Minister calling it revolutionary. Mr. Chhatra added that with curb on black money, some traders/millers who sit on huge stock of paddy and trade in cash spread rumor with malicious intent that lots of buying is taking place and distorts the pricing mechanism of a particular mandi or region as whole would not be able to continue these malpractices. Also this step would put a lid to some of the unethical practices by the selected few like mixing of two or more varieties of rice or bending rules to avoid some taxes that leads to distortion of selling prices in the overseas market giving bad name to the industry as whole. As a fall out many a miller/exporters were turning defaulters in the past few years giving a bad name to the Nation. Many stake holders in rice industry who had misused the Indian financial system taking far more loans then their worth are fleeing the scene leaving many lenders in lurch. Such helpless lenders would have courts to protect them in future. This scenario, where the news of willful defaulter has become a frequent occurrence, has badly shaken the conservative and compact rice market. Mr. Chhatra further stated that level playing field will return in the industry and some consolidation would emerge after sieving of the players. In the long run serious players with ethical business practices would prevail and prosper along with the rice farmers.
Rice brokers of Taraori Mr. Sushil Gupta also praised this endeavor of the Prime Minister terming it as great move for the rice industry in the long run. The Paddy price which is hovering at Rs 2350 per quintal might see a downward movement for a while due to this unexpected move.
Overall every prominent personality of the Country is going Gaga over this sudden development hitting India. This ban will likely have a bearing on the forthcoming assembly polls in Uttar Pradesh, Punjab, Goa and Manipur. India’s electoral funding is largely opaque and dubious and where parties receive up to 75 percent of their funds from unknown sources. India is among very few countries in the world that allow political parties or candidates to receive anonymous donations. This massive exercise undertaken by our Prime Minister, of financial inclusion for all, is indeed a masterstroke.