Millennium Post

Note ban impact to last longer than expected: Dreze

Note ban impact to last longer than expected: Dreze
Demonetisation will take an “awful toll” on the underprivileged, especially wage labourers, and its impact might be worse and last longer than expected, noted development economist Jean Dreze has said.

Dismissing the claim that the demonetisation was a “surgical strike” on black money, he said if the government is really interested in dealing with the problem of ill-gotten wealth, it would be useful to start the process by introducing transparency in political funding.

“The BJP, being in power and a proud enemy of corruption, would do well to set an example by disclosing its own accounts,” Dreze, a former member of UPA’s National Advisory Council (NAC) and now a visiting professor at the department of economics at Ranchi University, said in an interview. As far as the impact of demonetisation of higher value currency notes is concerned, he said, “The crisis will take an awful toll on the underprivileged, especially wage labourers.” 

“The effects of demonetisation might be worse and last longer than the government seems to expect. Short-term changes in the informal sector are largely below the radar of official statistics,” Dreze added.

Noting that the economic growth in the private sector has more or less ground to a halt for now, the Belgian-born Indian economist said, “recovering from this broad-based slump is likely to take time.” 

Observing that the cashless payments may have some merits, but forcing them on the population at the risk of crashing the economy is not a fair way to promote them, Dreze hinted the real purpose of demonetisation is different - perhaps something to do with corporate interests or electoral politics. “In terms of the hidden purpose, demonetisation may be a success, but at the expense of the general public,” he noted.

Stressing that the government has enough legislative powers to go after the big fish, including the top corporate loan defaulters, the noted economist said he is sure that would be more effective than to harass millions of Jan Dhan account holders in an elusive search for black money.

Dreze, who has done extensive work in India –on issues like hunger, famine and the NREGA –said the government should revive a series of legislative initiatives that have come to a standstill in the last three years, including the Lokpal Act, the Whistleblowers Protection Act and the Grievance Redressal Bill.

A chamber report said that the Centre’s demonetisation drive would have a “significant impact” on the country’s economy in the near term, but once the transition phase was over, the growth momentum would pick up. 

Around 81 per cent of the economists covered in the survey by PHD Chamber of Commerce & Industry see a “significant impact” on India’s economic growth in the shorter term. However, the benefits accruing from demonetisation will help in sustaining the country’s economic growth in the longer term, they said.

“Though the contraction in GDP cannot be ruled out due to fall in economic activity, growth in demand will start gaining momentum once the economy moves out of the transition stage of demonetisation to remonetisation,” PHD Chamber of Commerce & Industry President Gopal Jiwarajka said. The survey covered responses from over 50 economists and analysts, 700 business firms and 2,000 people during December.

In the business segment, 73 per cent respondents are facing huge cash crunch due to demonetisation as they are unable to fulfill their daily cash requirements to pay wages to daily wagers and contractual workforce, it pointed out.

Production process not only in the informal sector but also in the formal sector has been impacted directly or indirectly, said the survey.

Cash driven segments such as fruits and vegetable markets, horticulture and floriculture, agricultural and food processing, construction activities, among others have been impacted, it observed in the findings. However, it said the immediate effect would probably be short-lived and the long-term benefits of demonetisation will drive the Indian economy to new areas of growth in the future.

“It is expected that removal of black money from the system would create a good scope for reduction in interest rates via-a-vis lower inflationary expectations and reduce the incidence of direct taxation,” Jiwarajka said.

“There is a need for low interest rates to propel a boom in housing and real estate. This will substantially increase employment as well as contribute towards GDP growth”.

Around 92 per cent of the respondents said that the major impact of currency crunch is seen on daily 
needs of the people such as purchase of eatables, dairy products and other necessities, whereas 58 per cent are facing high level of difficulty in fulfilling their day to day activities.

Demonetisation pulls down air cargo traffic by 12% in Nov: Icra 

The demonetisation drive has not only badly hit the air cargo market leading to a 12 percentage points slump on a month-on-month basis but has also slowed down the passenger traffic growth in November to 19 per cent from 22 per cent in the rest of the year, says a report.

Air passenger traffic stood at 22.6 million, exhibiting a growth of over 19 per cent in November on a month-on-month basis, cargo traffic witnessed a decline of 12 per cent in the month, while air traffic as a whole declined 2 per cent. Even passenger traffic growth on a m-o-m basis tempered to 19 per cent from over 22 per cent in the previous month, says a report by domestic rating agency Icra. In contrast to the robust y-o-y growth in passenger and aircraft traffic, the y-o-y growth in air cargo traffic halved to 7 per cent in November as against 14 per cent in October, notes the report.

During the first 8 months of the current financial year, passenger traffic has grown 19 per cent, aircraft traffic has grown by 15 per cent and cargo traffic has grown by 9 per cent, according to the report. Air traffic growth moderated due to the slowdown in economic activity following the note ban, says Harsh Jagnani, a vice-president at Icra. 

“November reported slight moderation in total passenger traffic growth on both m-o-m basis and year-on-year basis. But growth remains healthy (3 per cent m-o-m and 19 per cent y-o-y) reflecting the continuing overall positive growth trajectory,” says Jagnani. He added, "The slowdown is primarily on account of decline in domestic cargo traffic, which reported a y-o-y degrowth of 4% in November as against 12% growth in October. The cargo traffic fall can be attributed to the economic slowdown following the note ban.

“However, the international cargo traffic, which constitutes around 63 per cent of overall cargo traffic in the country, reported a relatively stable growth of 15 per cent in the month compared to 16 per cent in October, thereby supporting the overall cargo traffic growth,” Jagnani says.

It can be noted that in a surprise move, the government on November 8 had denotified as much as Rs 20.51 trillion worth of Rs 1,000 and 500 banknotes which is 86 per cent of the total money in circulation. 

Both domestic and international cargo traffic reported a a decline on m-o-m basis in falling by 20 per cent and 6 per cent, respectively. Moreover, 18 out of the top 20 airports reported m-o-m decline in cargo traffic in the month under review.

Jagnani further says passenger traffic growth in the month has been driven primarily by significant y-o-y increase in domestic passenger traffic (22 per cent), which constitutes over 78 per cent of passenger traffic as of end-November.

Aircraft traffic growth also reported slight moderation on y-o-y basis, however, on m-o-m basis it reported 2 per cent fall in November as against 7 per cent growth in October.

Both domestic passenger and aircraft traffic continue to dominate total traffic with domestic passenger traffic and domestic aircraft traffic reporting a 22 and 16 per cent y-o-y increase, respectively in November, significantly higher than the 8 and 6 per cent growth in international passenger and aircraft traffic, respectively.

The domestic passenger growth has remained broad-based with 19 out of the top 20 airports exhibiting double-digits y-o-y growth rates. Growth remained robust across both the metros with a y-o-y growth of 17 per cent and non-metros with a y-o-y growth of 22 per cent. Further, air cargo traffic reported m-o-m decline of 12 per cent in November as against a 9 per cent m-o-m growth in October. 


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