Industry battles 'demon' deadlock

Whether it’s the precious metals sector or the export-driven leather industry, the order of the day seems to be knocking on the doors of ministries to make the business conducive as before. Rafeeque Ahmed, the Chairman, Farida Group and Council for Leather Exports says, “A few days ago, we made a representation to the Department of Industrial Policy and Promotion (DIPP) under the Centre to relax the labour policy to enable the leather sector to pick up from where it left off. Demonetisation has hit daily wage earners hard. As opposed to a few months ago, there is now an urgent need for opening bank accounts to facilitate the process of raw material procurement. With confusion prevailing and daily notifications being issued, we approached the DIPP for extending the timeline by three months.”

Similar steps are being taken by the precious metals sector. Earlier last month, the sales of gold jewellery in Chennai had been hit by about 80 per cent. Jayantilal J Challani, President, Madras Jewellers and Diamond Merchants Associations (MJDMA), says, “ The association has placed a few requests with the Finance Ministry as well, that is believed to help in the transition to a cashless economy. One of our demands is that the 1.25-1.50 per cent service charge levied by the banks, for every card transaction needs to be removed. We are unable to pass this burden on to the customer and it’s quite a huge cut for us as well. Only 10 per cent amounts of the total transactions amount to cash deals. Most customers use RTGS or credit cards to pay for their purchases. Once GST comes in, we hope they retain the existing tax slab on gold. Right now there is 1 per cent VAT, which is taken by the Govt and there’s 1 per cent excise, which are borne by the jewellers. We can only afford a 2 per cent GST slab with respect to gold, anything more would defeat the purpose of demonetisation.” 

Financial analysts hold the view that the policy has to be seen from a long-term impact. 

D Arvind of D Arvind and Associates, LLP says if the cost of printing currency can be recovered in the form of tax revenue arising out of cash deposits without proper income source, then it would be revenue-neutral for this fiscal. 

“But, the opportunity to track the assesses, getting more tax payers into the net and increasing plastic or digitised transactions next year, will all contribute to the overall GDP growth. In two years’ time, tangible results will start showing,” he said. 

N Chandramouli, the CEO of TRA Research, which releases quarterly reports focussing on the Buying Propensity of India tells us, “It will take a minimum of two quarters for us to see the actual benefits, or negatives that could have come off this clean up drive. This period crucial as those businesses who are unable to transition into the net of the cashless economy face the risk of going under. Even the festive season might be unable to revive the fortunes of the market instantaneously as the demand for goods and services has been hit hard. Rural industries including tea plantations and handloom mills have been known to face the brunt of this move, as they are more or less cash dependent. Payment cycles in the organised sector have also been hit, directly or indirectly.” 

V Pattabhi, Partner, Yoganandh & Ram, a CA firm says from a government standpoint it is a move aimed at purging the larger section of people, who have been dumping money in benami accounts. 

Meanwhile, a former bureaucrat, on condition of anonymity, says he would wait and watch for the government to announce a slew of measures post December 30, 2016. He says, “If during the tenure of the former Governor itself, the new currencies had been printed, then the current supply inadequacy situation could have been overcome. In three weeks’ time, if the collection swells from Rs 11 lakh crore to the targeted Rs 14 lakh crore, then recapitalisation of banks will be possible.” 

He adds, “Banks must be told to reflect the actual value of deposits and not inflate them to 15 pc so the margin money collection can be safeguarded.” 

He revealed that acquiring large tracts of land and then later extending the city limits by classifying those areas as metropolitan made real estate a black-money driven sector.