Demonetisation will hit agriculture, informal workers worst: Study

The demonetisation of Rs 500 and Rs 1000 notes will hurt agriculture informal sector workers about 482 million people who earn cash incomes and disrupt Indias consumption patterns for at least the next quarter according to an assessment released last week by Deloitte an international consulting firmIn contrast sectors like ecommerce and payment banks payment gateways are set to gain as transactions using cashless methods will increase over the coming months the Deloitte report said emphasising that the longterm outlook remains positivePrime Minister Narendra Modi who had promised working ATMs by day three pleaded for 50 days to set the chaos right and his government extended the validity of the old notes in select transactions for another 10 daysWhile the shortterm impact will be pronounced on the brickandmortar retail sector like kirana shops vegetable and fruit vendors longterm negative impacts on the realestate sector are possible the Deloitte report saidOverall a likely negative impact on disposable income is expected along with disruption in the consumption patterns of the general populace said the report which called demonetisation arguably one of the most significant reform measures in its tenure and an expeditious move to boldly counter the black money and parallel economyOthers are not as optimistic Demonetisation has perhaps penalised the entire informal sector and damaged it permanently especially the informal financial sector which could account for a fourth of bank lending or 26 per cent of GDP wrote Pronab Sen Country Director of the India Central Programme of the International Growth Centre a think tankThere is no doubt whatsoever that Mr Modi has pulled off a major political and publicity coup and substantially enhanced his reputation as a muscular leader but surely somebody needs to ask at what price wrote Sen in Ideas for India an economics and policy portalA total of Rs 14 lakh crore or 217 billion 86 per cent of the value of Indian currency then in circulation became useless from midnight of November 8 part of the governments crackdown on black money which accounts for about a fifth of the economyAgricultural growth in India contracted 02 per cent in 201415 and grew no more than 12 per cent in 201516 largely because of backtoback droughtsAgriculture was expected to grow at 4 per cent this year according to a CRISIL report but demonetisation is likely to dent that forecast India is currently in the midst of the winter sowing season but farmers are reported to be running out of cash to buy seedsIndian farmers expect a record harvest this year but the rural economy on which 800 million people or 65 per cent of Indias population depend is largely driven by cash Farmers buy seeds fertilisers and farm equipment in cash pay their workers in cash and traders and commission agents pay farmers in cash The shortage of cash is spreading anger in the countrysideThe informal economy which presently employs more than 80 per cent of Indias workforce includes workers in small and medium industries grocers barbers maids and others They have limited access to Internet online payments and are affected as roadside vendors cab drivers kirana stores and medical stores have stopped accepting Rs 500 and Rs 1000 notesPeople who do not use debit or credit cards have no access to the Internet or mobile banking and ewallets will be the worst hit said the Deloitte report India has about 700 million debit and 25 million credit cards according to Reserve Bank of India about 950 million people 78 per cent of the population do not have an Internet connectionThe demonetisationled slowdown may also impact a key economic driver private consumption the things that people buy Private consumption as a percentage of gross domestic product GDP has been steadily rising over five years to 201516 according to data from the office of governments economic advisorAs ecommerce websites stop cashondelivery the most favoured option for Indian online shoppers comprising 80 per cent of sales and struggle to hand over to banks the money they collected after demonetisation the report predicted a rebound that will benefit both the ecommerce industry and companies facilitating payments to it such as payment gateway companies payments banks and electronic money transfer portals Online transactions in India rose 40 per cent in 2015Other possible impacts that the Deloitte report listed a hit on foreign trade as the rupee currency appreciates lower inflation and cheaper prices especially in the realestate sectorAs far as the real economy is concerned there is going to be huge blow to purchasing power All kinds of people who were accepting notes are going to refuse to accept the notes economics writer Swaminathan Anklesaria Aiyar told the Economic TimesDomestically there could be some turmoil as the effect will be disproportionately felt by the lower and upper income classes the Deloitte report said