Government’s move to demonetise higher denomination currency notes is bound to adversely impact the third quarter earnings of corporates, particularly those involved in retail trade, unless the cash crunch is alleviated by the month-end, industry body CII said on Tuesday.
In an interview, CII President Naushad Forbes also urged the government to increase weekly withdrawal limit for current accounts from Rs 50,000 at present to ensure adequate liquidity for businesses, acknowledging that the move has certainly created “serious inconvenience” for most people.
“I think a few companies that rely on retail trade will show an impact in November, no question. The sooner cash gets back into circulation, the faster they will recover. If these shortages that you see today continue into next month, yes you will see their effect on third quarter earnings,” Forbes said.
Government on Monday increased the cash withdrawal limit to Rs 50,000 per week for business entities having a current account for the last three months to pay wages and meet sundry expenses.
“We need to address the issue of the (withdrawal) limit that has been set for companies,” the CII President said.
Forbes said that the policymakers need to also worry about the flow of black money transactions and find ways to reduce those, such that the future generation of cash on illegitimate basis comes down.
“This move of demonetisation is a very direct way of addressing the stock of cash but we need to address the flow aspect of it,” Forbes said.
Sharing the chamber’s perspective, he said: “We think it is the right move in the long-term interest of the country, in the short it has certainly created serious inconvenience for people at large”.
However, he said that one needs to recognise the scale of the change that has been attempted, adding that given the current situation, banks are doing the best that they can.
“We would all have liked to see things happen more smoothly”. “We took out 85 per cent of the cash in circulation between 500 and 1,000 rupee notes, that is a huge proportion, it is 10 per cent liquidity of the GDP which has suddenly been sucked out of the system overnight,” Forbes said.
Even a week after the withdrawal of 500 and 1,000 rupee notes, there was no end in sight for most people as they continued to struggle for basic necessities waiting in long, winding queues outside banks and ATMs to get petty cash. As wholesale inflation declined for the second month in a row, calls for a rate cut by the Reserve Bank grew shriller, with India Inc pitching for lower interest rate to check the temporary squeeze of liquidity after government’s move to scrap 500 and 1,000 rupee notes.
Going forward, prices are expected to remain muted as favourable monsoon would augment food supplies in the market and international commodity prices will continue to stay under pressure, industry bodies noted.
In the second consecutive month of decline, wholesale inflation eased to 3.39 per cent in October as food articles, led by vegetables, witnessed softening of prices.
The Reserve Bank is expected to announce its monetary stance in the fifth bi-monthly policy statement on December 7.
Ficci President Harshavardhan Neotia urged RBI to continue with an accommodative stance, support the sentiment of investors and consumers and stabilise demand.
“An immediate 50 basis points cut in repo rate should be considered by RBI as well as some measures may be introduced to provide easy finance for sectors like housing, automobiles and consumer durables,” he said.
PHD Chamber of Commerce and Industry President Mahesh Gupta said that demonetisation would also help prices to remain under control in the coming months.
Good monsoon behaviour and abundant supply of kharif crops coming in the market in the recent months has checked the rise in prices of many commodities, said Gupta.
“The average WPI inflation stands at around 3 per cent during Apr-Oct and we are hopeful that inflation will fall below 3 per cent in the coming months,” he observed, adding that the repo rate at this juncture should not be more than 6 per cent to give a big push to the economy with the new currency in circulation.
CII Director General Chandrajit Banerjee said that in the prevailing scenario, RBI should continue with its rate easing cycle to support demand in anticipation of a benign inflationary outlook for the future.
The wholesale price-based inflation, reflecting the annual rate of price rise, in September stood at 3.57 per cent. In October 2015, WPI inflation was (-)3.70 per cent.
Delhi Jewellers’ shops stay shut for 5th day after I-T survey
Gold and jewellery establishments in the national capital remained closed for the 5th day on Tuesday after the Income Tax Department conducted surveys following reports of profiteering and tax evasion by traders and other operators in conversion of demonetised notes.
The survey operations were carried out on November 10 in at least four locations in Delhi-NCR region, including Chandni Chowk and Karol Bagh. Most jewellery houses have been closed since November 11 in the national capital. According to the sources, the officials of Directorate General of Central Excise Intelligence, an arm under the Finance Ministry, has sent notices to these jewellers seeking details of the gold sales.