The heart of India’s businesses lies with Small and Medium Enterprises (SMEs). Demonetization is a great reform for the long run but one that’s had a short-term blow for day-to-day functioning of small companies. One can argue whether these were operating in the right way or the wrong way, but they are for now strapped for functioning monies. This has disrupted operations, shuttered down factory sheds, and sent into disarray seasonal cycles of different businesses. On the other hand, it’s opened them up to the notion that survival of business will be by the books, paying ‘cost of convenience’ i.e. the Indian jugaad for bribes and touts will drastically slide. SMEs hope that the Prime Minister’s effort will mean an internal shakeup of the inspector raj fostered by governments themselves. There are genuine challenges for demonetization to become one of the best moves for India’s SMEs.
I was speaking to a wedding and greeting card manufacturer in Delhi’s Chawri bazaar who says they have had no petty cash to pay printing labour, who are in dire need to make ends meet. He raised two key issues: One, many customers have called off already-completed orders because they have no ability to pay. Presumably in this business, many customers also showed keenness to spend in cash. Two, many card manufacturers block large deals ahead of the season (upcoming ones being New Year and Valentine’s Day) from China, where they have paid advances but have fewer means to get those orders completed. Worse, once these shipments arrive in India, the bulk buyers who function in cash will no longer be around to buy them, causing a multi-seasonal loss, threatening business survival.
In Punjab, there are businesses that are into production of pumps, sports gear and other such products, some of which may even be exported. The main issue, as an industrialist points out, is with labour. “They are labour migrants who travel across India hunting for jobs and often don’t have ID cards or banking history,” he explains.
In the small industries, 80 to 90 per cent work culture is based on cash. They have been forced to keep shutters down to first manage the larger problem of how to declare and then to digitise themselves and turn fully bankable.
Another manufacturer of motors in Ludhiana believed the Central government has clearly done a lot of spadework in helping people open accounts, but the impact has been mixed. Employees have been forced to open bank accounts and have Aadhar cards, but the labour is far from this process yet.
The manufacturer believes the government has not taken into account the need for systemic reform. “By demonetization, you may have sucked out the money. I don’t sell product to my dealer without a bill, but we all know dealers do a lot of adjustments because they are multibrand sellers. That will affect sales and production of companies. My sales are down to 20 per cent of what they used to be. I am hoping this will be a temporary phase as the taxation in pumps is as it is quite low and many are already doing business in white.”
http://www.dnaindia.com/analysis/column-jugaad-economy-shuts-shop-2274461
OH, but is for the greater good.
