 "November exports may fall due to demonetisation: Exporters")
After a rebound in exports in October, exporters feel demonetisation could lead to a fall in outbound trade this month, and a greater fall in the coming months.
Meeting Commerce and Industry Minister Nirmala Sitharaman on Monday, exporters warned that the government's ban on Rs 500 and Rs 1,000 currency notes would lead to a production decline in the short term. They have also unanimously asked that the weekly withdrawal ceiling of Rs 50,000 allowed to industries be raised to Rs 5,00,000.
This might lead to the government further relaxing the norms for cash withdrawal, after concessions given to farmers as well as those getting married, in the last few days. Sitharaman said it will submit a compiled report to the Finance Ministry and incorporate all demands.
Announced on October 8, the policy has lead to severe difficulties in sourcing input materials, paying informal workers and transporting goods in the past two weeks, exporters said.
This will see exports go down to a small extent in the short term as industries have existing stock in place, sources said under conditions of anonymity. However, a continuation of the current scenario will lead to ripple effects that may persist for the next few months at least, they added.
Exports had risen for the second consecutive month in October, growing by 9.59% to $ 23.51 billion. This was only the second occasion in the 22 months since December 2014 when a chronic fall in exports started.
Exporters believe the situation will also have a grave outcome for employment with large numbers of casual labourers looking at no work as well as downstream industries facing the loss of work.
"Some of them have preferred closing the units for a week and some of them reducing the capacities of production from 100 or 70% to about 35 or 40%," Sitharaman stated.
The sourcing of scrap metals has effectively stopped since it is almost always done in cash, the Engineering Export Promotion Council (EEPC) said. Similarly, the garment manufacturing sector is facing difficulties in purchasing of cotton yarn since farmers only accept cash payments. It has also asked for lowering transaction costs.
In logistics, particularly truckers are being hit hard by the cash crunch. With a lack of indispensable cash used for food, fuel and lodging, many truckers have stopped working, leading to a massive backlog of consignments to be transported.
Demonetisation has also thrown up other issues. "Some companies have a weekly system of wages where workers seek payment in cash. Even though they have bank accounts, they are unwilling to accept direct payment to their banks largely. Because, if the amount exceeds Rs 50,000 this would lead them to forfeit their subsidy benefits for BPL (Below Poverty Line) account", Ravi Sehgal, Senior Vice Chairman, EEPC said.
Among other demands, exporters have also asked for a lower charge on credit transactions as well as the special concession to cash-based industries such as handlooms, carpet weaving.
