India's economic landscape as we used to know it before November 8, is gone forever.
The business community has to adjust to a new reality. How do you work without 'adjustments'!
To think of it, adjusting is part of Indian ethos, with Wives adjusting with Husbands, Sons adjusting with parents, Citizens adjusting with Governments, even Birds & Animals adjusting with Humans!
So, to think of a life without scope for adjustments, is something that we Indians havent done in generations together.
The culture of not giving enough to the government perhaps started with the Indians not wanting to give enough to the government which was run by the British. You tried to save what you could from the Elite Angrez. Post independence, while a large section of the society became patriotic, and contributed what they could to the country, the government had to help kickstart and stabilise the economy by freebies, doles & licences.
The license raj fostered a culture of 'payments' & 'cuts' and a privileged few got immense benefits while the poor remained poor. Government investments did not take place as was promised, and the middle class & poor felt dis-enfranchised.
Thus came the period, where Indians felt it was 'right' to not share their profits completely, as anyway the government didn't do enough for them. Business families have diligently taught children how to dress books in order to retain what they considered what was their 'fair' share. Somewhere down the line this 'fair share' turned into a 'lion's share' and thats where the country started hurting. The abolition of licenses gave birth to bigger malaise in forms of everyday corruption. The entry of foreigners into the country and the prospects of large deals prompted large scale corruption in government purchases, public investments.
Such capitalism brought about more malaise in the Political establishment, which in turn made the public feel, it was 'ok' to cheat. This brought an era where keeping your cut became fashionable. Hell, even priests kept their cut from the Gods!
Then came the first post independence Prime Minister of our country, Shri Narendra Modi. On 8 November 2016, He said ' why should everyone steal from everyone?'. What if the government gets all this money? That will potentially change the political landscape for him going forward.
He precisely attempted to remove all cash from everyone's hands and asked everyone to put it in banks, and government coffers. So he banned all Rs 500 & Rs 1000 notes, comprising of 86% of cash in circulation.
Suddenly, the Economy and its servants were in panic. They didn't know what to do. well, they (we) had never done something like this. It was like coming clean as never before! Thus started the biggest cleanup in Indian history. Notes were searched for in every nook & corner(literally) of the country's households & offices. everyone had to come clean on how much money they had. Fathers to sons, sons to fathers, sisters to brothers, even wives to husbands!
This brought a strange new reality to us. We have never known how to be absolutely true like this. It was like an economic apocalypse for a large large section of the economy. Businessmen who used to show off their ill gotten wealth suddenly felt their lives crashing down around them. In moments, what used to be the best way to make money, suddenly seemed gone.
Even then, the goodness that is India, every person said, affected or not, It is good for the country. In long term, the country will benefit.
However, no one had bargained for the turmoil that the country will face in the coming days. People were suddenly without any cash! Turns out event the poor also had mostly Rs 500 & Rs 1000 notes. they began queueing up at banks, post offices, markets where-ever the notes were accepted. But alas, there simply wasn't enough.
The government realised that they don't have that many notes to distribute that fast. They had thought that the people would have some more money, and they would be able to wait. But the people felt that even if I dont need the money, let me take some notes and save, just in case!
This gave the opposing politicians (who had most to lose) an opportunity. They started fanning the fire, and it spread. With each passing day, situation became better, but still the hunger for cash grew stronger. The reality of cash in the Indian society came to fore.
The above story, when reflected for its true impact has the following facets to it, Social, Political & Economic.
The Society has seen one of the greatest redistribution of wealths in the history of our country. Never before have the rich begged the meek(poor) for helping them 'adjust' their money. Business owners had to come clean in front of their people on the extent of their riches. A large section of the poor felt that for the first time, they have the upper hand. Even the Middle class and the salaried class felt very happy that the rich are troubled. This is their time, they have felt.
Social divide has become sharper, however, the poor's irritation with government has gone in a different direction, with them feeling the government didn't do 'anything' to 'too much'!
The Economic Impact is something that the government hadn't bargained for. India has been the fastest growing economy off late. The wheels of trade which had gained speed and traction for the past three months of August, September & October, had to apply a huge 'shuttle break', bringing the massively growing economy to a wheezing, grinding halt. Businesses which had maximum cash component in them suddenly didn't know how to operate.
Every individual started focussing on how to 'manage' what they had first. Business could come later. The survival instincts of our populace was clearly demonstrated in this 'extinction level event', so to speak.
The first hit have been industries like Food(fruits & vegetables, and consequently processed foods), Cloth(all forms and entire value chain), Farmer chain like Milk, PVC cloth, Jewellery, real estate, large trade centers like Delhi, Kolkata, Ichhal Karanji, Surat, Mumbai etc. This was bourne out from interviews with seniormost bankers in the country.
Then came the second wave where the entire economy felt the impact with massive breakdown in trade in industries like Automobile, Retail, Luxury Goods and each and every section of the trade.
Trade bodies like FICCI, CII, FADA & SIAM have said that the trade is down by 30-40% and they are planning largescale production cuts. Banks have been warned of very high NPA's given the cash crunch with people & businesses.
Highly capital intensive industries have to contend with the new reality of people suddenly not spending. This is specially painful as H2 of any financial year, is when people have prepared for large growth, and hence all investments, plans have been made as aggressively. This slowdown will have further impact of massive retrenchments across the board.
Thus, the salaried class, which has been largely happy till now, has reason to worry. Given the sudden change in climate, businesses will run to cut costs, sharply. The first to bear the brunt has to be to costs on manpower.
This, will have large impact on the consumption industries. This, is the real worry for the government. Unless they bring a kicker to the economy, it will be very difficult to revive the suddnly spluttering, flailing & Fluttering behemoth that it has become in the past 2 weeks.
So, the Economic impact has been far greater than the social benefit that the country has witnessed. The next 8-12 months are gone as far as business & growth is concerned.
As we all know, Politics trumps Society & Economy. This is what has prompted the above scene of misery & anguish.
Like promised, Mr Modi has taken steps in order to secure his future in the Indian Polity for the next decade or so. For this, he knows he needs to win states like UP & Punjab. Hence the sudden need to change his voter base. In one swift movement, he has changed his supporters from traders, businessmen, jewellers, Gujaratis & like to the poor, masses, downtrodden, dis-enfranchised et al.
He has also removed the entire cash hoard with his competitors like the Congress, BSP, TMC, SP. Politicans like Mamata Banerjee took the first stand against the move, sensing a reality to gain support from the muslim voter group. She crafted an alliance with Arvind kejriwal and others. So grand has been the impact on the competition that even his staunchest of supporters like TDP have come out against the policy.
One curious fallout of this action has been the hardship to the muslims, who as a community, have the lowest penetration in the banking channel, as their law prohibits them from taking loans or earning interest. This community had always kept money at home, rather than in banks.
This reason, above all, has been behind the action in a marriage month of November, just before onset of the winter festivities. So what, if large section of the poor has faced harships, business had to undergo a huge difficulty. The expected loss of business to a large section of trade is significant, and yet to be quantified.
Hence, while the BJP may have felt that they have won the war, it is likely that they would lose the battle, with a large section of the society as collateral damage towards its goal of political legacy.
If only, it could have been implemented well!
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