By R. Ramakumar
The litmus test for the success of any demonetisation is the amount of cash that does not return to the banking system. For long, economists and observers were intrigued by the refusal of the RBI to share data on SBNs (Specified Bank Notes) returned to banks after December 10, 2016.

Information on SBNs returned was important because any amount not returned to the banking system was supposed to be 'black money', which could be 'extinguished' by the RBI... Consequently, the RBI could pass over an equivalent amount to the government, which in turn could spend it for welfare purposes.

The government's expectations were shared by the Attorney-General of India, Mukul Rohatgi, with the Supreme Court. According to Rohatgi, the government did not expect more than Rs 12 lakh crore to be returned to the banks, which implied that about Rs 3 lakh crore worth of 'black money' was to be extinguished and passed over to the government.

As demonetisation proceeded, these hopes stood belied. To begin with, (RBI Governor Urjit) Patel was forced to clarify on December 7, 2016, that "the withdrawal of legal tender characteristic status does not extinguish any of the RBI balance sheets ... They are still the liability of the RBI".

On December 8, Revenue Secretary Hasmukh Adhia told journalists that "the expectation is that the entire money which is in circulation has to come to the banking channel". In other words, the pace at which SBNs were being returned to the banking system had convinced the government that there would be no currency left to extinguish. By December 10, Rs 12.44 lakh crore worth SBNs had already returned to the banking system.

The government staunchly refused to share any figure on SBNs returned after December 10. Instead, it attempted to obfuscate facts and confuse the public with convoluted stories of 'double counting'. On December 15, (Economic Affairs Secretary Shaktikanta) Das told the media that data on SBNs returned were being withheld because the RBI suspected 'double counting' of currency notes.

Das' statement was soon shown to be wrong.

There were two ways in which returned SBNs could be counted. One, through the simple addition of the cash position of individual banks with respect to the SBNs returned. There could be double-counting here, as banks without currency chests may have deposited cash with banks that had currency chests.

Two, directly from the currency chests, in which case there was no scope for double-counting. (Deputy Governor of RBI Usha) Thorat, in an interview, pointed out that "there is no question of double counting... RBI only looks at the currency chest data".

In an interview with the Economic Times, Rajnish Kumar, the Managing Director of the SBI, further clarified this in no uncertain terms: ...currency chest position is the correct position, there cannot be any flaw in that ... double counting can only happen if the individual banks and post offices are reporting the deposit position ... but [in] currency chest reporting which is done every day and which is an automated process, the possibility of any discrepancy does not exist ... If the Reserve Bank has given the number based on the currency chest position, then there should be no discrepancy. But if the data is given on the basis of daily reports of deposits being given by the bank, then there is a possibility of some double counting.

In its regular media briefings, the RBI was indeed providing SBN data from currency chests and not by adding the cash positions of individual banks. The RBI's Deputy Governor R. Gandhi told the media on December 13, 2016, that "specified bank notes of Rs 500 and Rs 1,000 returned to the RBI and currency chests amounted to Rs 12.44 lakh crore as on December 10, 2016 ".

Yet, the RBI was to state on January 5, 2017, that "figures [on SBN] would need to be reconciled with the physical cash balances to eliminate accounting errors/possible double counts". The effort, clearly, was to hide.

It was only in August 2017 that the RBI, ultimately, released the final figures of the SBNs returned. According to the RBI's Annual Report for 2016-17, out of the Rs 15.44 lakh crore worth of currency in circulation as on November 8, 2016, Rs 15.3 lakh crore had returned to the banking system as on June 30, 2017. In other words, 98.96 per cent of the SBNs was back in the banking system and only 1.04 per cent of the SBNs remained outside.

The verdict was finally out: As most critics predicted, demonetisation had failed to extinguish any amount of money that could be alleged as 'black'.

(R. Ramakumar is Dean, Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Sciences, Mumbai. He can be reached at ramakumarr@gmail.com)

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'Demonetisation'-- the withdrawal of legal tender status of notes of denomination Rs 500 and Rs 1,000 -- announced by India's Prime Minister Narendra Modi over a televised address on 8 November 2016 will go down in history as one of the most reactionary and illogical economic policies ever attempted in independent India.

It crippled an economy that ran on cash and was plagued by a slowdown; it destroyed the livelihoods of millions of farmers, workers, traders, women and the elderly; and it violated the dignity and liberty of law-abiding citizens.

Yet, in a post-truth world, demonetisation also left public opinion in India deeply polarised. The language of the state had a deceptive appeal. In a society marked by abject poverty and inequality, and where everyday lives of citizens are marred by myriad forms of corruption, it came as no surprise that Modi's misadventure was received as a decisive measure.

Economists like me knew of the earlier demonetisation of 1978. But we also knew that it had failed to unearth any significant amount of black money. We were also aware of quack ideologues of the right-wing who demanded measures like demonetisation and the substitution of income tax with a blanket transactions tax. But we had also dismissed them as obscurantist drivel.

Never did one imagine that one among these irrational ideas would actually find a place in economic policy. Of course, many aspects of neoliberal economics are intrinsically inverted on logic. But the demonetisation of 2016 beat them all.

In his address to the nation, Modi made two major claims in defence of demonetisation: on the one hand, it would stamp out counterfeit currency that was aiding terrorism; on the other, it would help the government unearth 'black money'. Soon after the address, one also heard television commentators waxing eloquent on India's imminent embrace of a cashless economy.

First, the claim that demonetisation would hit terror financing was overstretched because the total circulation of counterfeit currency did not exceed 0.002 per cent of the total notes in circulation. Second, no significant mobilisation of black money may be expected, as about 94 per cent of the unaccounted wealth was stored in the form of non-cash assets. Third, a cashless economy can never be created over diktats, as the persistence of cash was a structural feature of the economy.

What India needed was a structural transformation of its informal economy into a modern and productive sphere, which would systemically reduce the dependence on cash. A 'war on cash' would thus be ineffective and premature. Sycophants apart, these views were also shared by economists across the Left-Right spectrum.

First, according to the Reserve Bank of India's (RBI) Annual Report for 2016-17, the total value of counterfeit notes of denomination Rs 500 and Rs 1,000 detected by banks rose from Rs 27.4 crore in 2015-16 to Rs 40.8 crore in 2016-17: an increase by just about Rs 14 crore. As a share of the value of Rs 500 and Rs 1,000 notes in circulation in November 2016, the value of counterfeit notes detected in 2016-17 amounted to just 0.0027 per cent. The critics were right; the extent of circulation of counterfeit notes did not, in any way, justify a drastic action like demonetisation.

Second, the RBI also released estimates of the value of old notes returned to the banks between 10 November 2016 and 30 June 2017. Out of the Rs 15.44 lakh crore worth notes of Rs 500 and Rs 1,000 in circulation as on 8 November 2016, about Rs 15.28 lakh crore had returned to the banks. In other words, 98.96 per cent of the demonetised notes were back in the banks and only 1.04 per cent remained outside. The return of about 99 per cent of the demonetised notes is the most important indicator of the failure of demonetisation.

In December 2016, the Attorney-General of India, Mukul Rohatgi, had informed the Supreme Court that the government did not expect more than Rs 12 lakh crore to be back in the banks. The remaining Rs 3 lakh crore was black money, which would not return to the banks and could be 'extinguished' and passed on by the RBI to the government as dividend.

Red-faced, the government tried to contain the damage by claiming that demonetisation was intended to bring back all cash into the formal banking system. But in the public eye, the jury was no more out. There was no black money left to be 'extinguished'.

Third, the Central Statistics Office (CSO) releases quarterly estimates of gross value added (GVA). As chapters in this volume would argue, these estimates typically underestimate changes in the informal sector. Yet, despite methodological infirmities, on a year-to-year basis, the growth rate of GVA showed a decline from 7.6 per cent in the first quarter (Q1) of 2016-17 to 5.6 per cent in the Q1 of 2017-18. This decline was in continuation of a similar decline reported for the fourth quarter (Q4) of 2016-17. The CSO estimates have officially signalled that demonetisation was instrumental in intensifying recessionary tendencies in the Indian economy.

Stung by the estimates released by the RBI and the CSO, the Modi government tried to initiate a campaign to celebrate the 'success' of demonetisation in August-September 2017. This campaign made three major claims. First, demonetisation resulted in the 'highest ever black money detection'. Black money worth Rs 16,000 crore (i.e., the remaining 1.04 per cent of Rs 15.44 lakh crore) did not return to the banking system.

Second, there was an 'unprecedented increase in tax compliance' after demonetisation. About 56 lakh taxpayers were newly added and the number of tax returns filed rose by 24.7 per cent in 2017-18 over 2016-17. Third, digital banking grew rapidly after November 2016. The number of digital transactions rose by 56 per cent between October 2016 and May 2017.

All the three claims were false. Papers in this volume provide a comprehensive coverage in this regard.

First, the claim of detection of Rs 16,000 crore was actually an admission of failure, because the very premise of demonetisation was the existence of at least Rs 3 lakh crore as black money. In fact, the costs of demonetisation hugely outrun its benefits.

One, even if we assume, conservatively, that India's GVA shrank by 1 per cent after November 2016, the resulting economic loss would be about Rs 1.5 lakh crore.

Two, due to demonetisation, banks were inundated with new deposits worth lakhs of crores while credit outflows largely stagnated. As a result, the RBI had to mop up excess liquidity worth Rs 10.1 lakh crore from banks under the Market Stabilisation Scheme (MSS). The total interest outgo of the RBI on this count alone was Rs 5,700 crore.

Three, the RBI's costs incurred for printing new notes rose from Rs 3,420 crore in 2015-16 to Rs 7,965 crore in 2016-17: a rise by Rs 4,545 crore. These costs did not include intangibles, such as the time spent by bank staff on consumer interface and paperwork over many months.

Four, due to the higher costs incurred by the RBI under different heads, the total surplus transferred by the RBI to the government fell from Rs 65,876 crore in 2015-16 to Rs 30,659 crore in 2016-17: i.e., a decline of Rs 35,217 crore.

In sum, demonetisation was an extraordinarily loss-making proposition for the exchequer.

Second, the claim of rise in tax compliance after demonetisation is simply unimpressive.

One, there is nothing remarkable about the rise in the number of tax returns filed in 2017-18 compared to earlier years. Compared to the corresponding previous year, the rise in the number of tax returns filed was 51 per cent in 2013-14; 12.2 per cent in 2014-15; 29.9 per cent in 2015-16; and 24.3 per cent in 2016-17.3

Two, even among the 56 lakh assessees newly added, about 38.8 lakh assessees (or about 69.4 per cent) reported an annual income of less than Rs 5 lakh. The average annual income of these new taxpayers was only Rs 2.7 lakh. In sum, the increase in tax revenue from the new assessees would be insignificant.

Three, the claims of the government on the extent of spread of digital banking defy basic statistical logic. Analysis shows that, one, the percentage rise in the number of digital transactions were primarily owing to low base effects. Two, the total value of non-cash transactions rose by only 18.8 per cent between November 2016 and August 2017. Despite efforts to popularise mobile banking, the value and volume of mobile-based transactions recorded negative growth rates between November 2016 and August 2017.

All available evidence till August 2017 points to the return of cash in everyday transactions. The government's aim of forcing citizens to shun cash had failed.

(R. Ramakumar is Dean, Centre for Study of Developing Economies, School of Development Studies, Tata Institute of Social Sciences, Mumbai. He can be reached at ramakumarr@gmail.com)

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New Delhi, Nov 7 (IANS) When Raghuram Rajan, former governor of the Reserve Bank of India (RBI), cautioned the government against demonetisation, saying short-term economic costs would outweigh long-term benefits, he was not trying to be prophetic. But a year after Prime Minister Narendra Modi made that fateful announcement in a nationwide broadcast on the evening of November 8, it would seem Rajan's words had actually become so.

As economists and analysts, corporate honchos and statisticians struggle to gauge the beneficial impact of demonetisation, many of the objectives claimed by the government have fallen by the wayside. New claims and afterthoughts on the note ban by senior politicians in power have remained unconvincing. Demonetisation has raised more questions than it has answered.

The Prime Minister, in banning 1,000 and 500-rupee notes -- or 86 per cent of total currency in circulation -- had indicated that the decision would help remove black money from the system, rein in terrorism and take fake currency out of circulation. Have these objectives been met?

"Demonetisation was an utter failure. Theoretically it was known it cannot be successful. It could not remove black money, but in turn it has damaged the white economy and growth," Arun Kumar, former professor of economics at the Jawaharlal Nehru University (JNU) told IANS.

The benefits of the decision are yet to percolate to the economy, but the disruption as well as pain that it caused to hundreds of millions was very real, whose lingering effects are seen to this day and, which, at that time, had shaken the country to its core, touching nearly every citizen and visitor.

The overnight serpentine queues for weeks in front of banks, the loss of over a hundred lives in the effort to withdraw one's own money or change it, and the desperate desire to ensure that cash in hand did not turn to ash took its toll across the country. Was it worth it?

"The government made the elementary mistake of believing that black money is kept in cash. Black wealth can be transacted by non-cash means as well," said Kumar, who is now Chair-Professor with the Institute of Social Sciences. "Only three per cent of Indians generate substantial black money. But for this, the other 97 per cent had to face the consequences of demonetisation."

After months of vacillating, and being less than honest with citizens, RBI data in August 2017 said that 99 per cent of the banned currency in high denomination notes had returned to the banking system -- Rs 15.28 lakh crore out of the Rs 15.44 lakh crore in circulation on November 8, 2016. The calculation does not take into account the money changed by people in Nepal, where it's legal tender, or old notes held by many non-resident Indians who could not exchange it within the deadline.

"Indian demonetisation was remarkable, because unlike many countries that faced major economic and political problems after even less drastic measures, this passed off peacefully as most Indians accepted the (wrong) argument that this would end corruption," Jayati Ghosh, Economics Professor at JNU, told IANS.

"The initial reasons the government had advanced for this move, of reducing terrorism and eliminating both black money and corruption, were rapidly abandoned for other supposed goals, which are also yet to be met. There was no planning before unleashing such a big decision," she added.

The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer -- the RBI -- had no role in the decision, as testified by Rajan.

Demonetisation comes across more as a measure of political economy which may appear, on the face of it, to have paid immediate political dividend to the Prime Minister and his party in the Uttar Pradesh elections this year. But the medium-to long-term picture would take a while to clear up, though short-term impact has already taken its toll on growth.

At the end of May, the Central Statistics Office announced that the GDP during the fourth quarter ending in March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India's GDP during the past fiscal grew at 7.1 per cent -- at a rate lower than the eight per cent achieved in 2015-16. In terms of gross value added, which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over 2015-16.

"Demonetisation is a textbook example of what happens when you remove liquidity that is the basis of transactions. The immediate result was that people didn't have money even for small transactions. This had a strong negative multiplier effect, most evident in the informal sector," Ghosh said.

"Cash is the means of transaction in the unorganised sector, which contributes 45 per cent to the GDP. The unorganised sector got hit by 60-80 per cent," Kumar said, adding that the country went through a negative rate of growth in November-December 2016.

In October, the International Monetary Fund said in its latest World Economic Outlook that India's economic growth for 2017 and 2018 would be slower than earlier projections. The report cited the "lingering impact" of demonetisation and the Goods and Services Tax (GST) for the expected slowdown, projecting a growth of 6.7 per cent in 2017 and 7.4 per cent in 2018 -- 0.5 and 0.3 percentage points less, respectively, than earlier projections.

Ghosh said that the steps on demonetisation, taken together, "generated a perfect recipe for slowdown in the economy. In fact the slowdown is likely to be much sharper than estimated because the quick GDP estimates are based on formal economic activity, and the adverse impact on informal activities have not really been taken into account".

Ranen Banerjee, Partner & Leader, Public Finance and Economics, at PricewaterhouseCoopers (PwC) feels the country was already cooling down when the note ban came in, and it would take some time to evaluate its impact on the macro economy. "About three to four quarters prior to demonetisation growth rates were already on a sliding path. It could well be that the economy was cooling down and the trend has continued. Attributing the slowdown solely on demonetisation is not possible as we do not have sufficient data points," Banerjee told IANS.

Economist Dipankar Dasgupta, former professor of economics at the Indian Statistical Institute, said that although GDP in India is not calculated in a very comprehensive manner, the trend growth rate continued to be "pretty robust". However, despite the claim by the government of ending corruption through demonetisation, "day-to-day bribes are still being taken through cash", Dasgupta told IANS.

The objectives of dealing a blow to militancy and curbing fake money too seems not to have been met, as can be seen in Jammu and Kashmir, where, ironically, more incidents of militancy have been seen after demonetisation. "Logistics like shelter, passage and cash are mostly routed through over-ground workers and sympathisers of militants and those who could arrange high value notes in the previous system are doing so at present as well", a senior intelligence officer told IANS in Srinagar on condition of anonymity.

Similarly, about fake currency, officials said the notes carried by militants from across the border were sophisticated copies and those who made them earlier could easily make fakes of the new currencies.

Perhaps there has been some beneficial fallout on the digital economy. Industry stakeholders feel that though the note-ban drive gave the necessary impetus to citizens to start adopting online payment platforms, a lot needs to be done by both the government and the industry to make it a success.

But was the country-wide upheaval worth it to make people adopt more digital transactions? No jury would need to deliberate for long on such a question.

(Aparajita Gupta can be contacted at aparajita.g@ians.in)

(Editors: The above article is the last one in the series on demonetisation leading up to November 8)

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New Delhi, Nov 6 (IANS) The first three quarters of 2016 were going just great and smartphone players had raked in super profits right up to Diwali -- then demonetisation caught them by surprise, as it did others.

The note ban hit manufacturers across the spectrum -- especially domestic handset makers who primarily rely on cash sales in smaller cities and towns.

The subsequent cash crunch resulted in smartphone sales falling by 30.5 per cent (month-on-month) in November over the October festive season.

According to global market research firm International Data Corporation (IDC), Indian vendors were affected the most -- with a drop of 37.2 per cent in November -- as compared to Chinese players with a 26.5 per cent drop and global vendors with 30.5 per cent drop over the previous month.

When contacted by IANS, Indian vendors Micromax and Intex declined to comment.

"Demonetisation impacted the smartphone market at almost all levels, including the customer demand and stock movement in the distribution channels," said Upasana Joshi, Senior Market Analyst, IDC India.

In the fourth quarter (Q4) of 2016, smartphone shipments clocked 25.8 million units -- registering similar volume as that of 2015 but declining sharply by 20.3 per cent over the previous quarter owing to demonetisation, which led to relatively lower consumer sales in November and December.

According to the data provided by CyberMedia Research (CMR) to IANS, the smartphone shipment to India was 10 million units in October last year which shrank to 9.2 million units in November and then, slightly improved to 9.6 million units in December.

The slowdown was seen across all cities. There was a huge drop in inquiries and significantly reduced footfall at retail shops. To counter this, handset retailers started offering zero down payment options to improve sales.

To overcome the impact, smartphone players with huge online presence started offering EMI and easy payment options to keep the sales going.

Amid all this, China-based vendors' market share improved sequentially owing to their high decibel marketing, increased credit line to distributors and efficient channel management.

The sales, however, picked up in 2017 and smartphone players heaved a sign of relief as the cash flow got better.

"In the first quarter of this year, the smartphone shipment was 26.5 million units while in the second quarter, it was 28.4 million units," Prabhu Ram, General Manager, Industry Intelligence Group (IIG) at CMR, told IANS.

Local brands like Micromax and Lava grew 41 per cent and 24 per cent (QoQ) in the smartphone segment in the third quarter this year, respectively, recovering from their all-time low during demonetisation last year.

Global vendors, led by Samsung, were able to withstand the aggressive Chinese players post-demonetisation owing to their good distributor coverage and penetration in the Indian market.

"The overall industry sentiments were pulled down after note ban, having an impact on smartphones as well. People had tightened their fists and spending was at its lowest ebb," Faisal Kawoosa, Principal Analyst, Telecom and ESDM, CyberMedia Research (CMR), told IANS.

The industry proactively adjusted the smartphone shipment, scaled down advertising and marketing to the lowest possible levels and resorted to a "wait and watch" policy.

"As soon as the market momentum regained, they flooded the market with new offerings, advertising, marketing as well as promotions that synced up very well with the festive season. And thus we saw a strong comeback," Kawoosa added.

But the impact of demonetisation will be felt when 2017 comes to a close.

According to the market research firm Gartner, there will be a two per cent drop in the Indian government's IT spending this year owing to demonetisation and a drop in industrial production.

The government is forecast to spend $7.8 billion on IT in 2017 -- a 7.5 percent increase from 2016. This is, however, down from Gartner's projection of 9.5 percent growth this year.

"The two percent revision in our outlook is primarily due to the effects of demonetisation and a drop in industrial production," Moutusi Sau, principal research analyst at Gartner, said in a statement recently.

(Nishant Arora can be contacted at nishant.a@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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New Delhi/Hyderabad/Bengaluru/Kolkata, Nov 5 (IANS) Large companies and bankers, employees and customers, as well as small and medium enterprises have all vented their anger at the demonetisation announced by the government on November 8 last year.

But the common man and woman have not been heard enough, though they are the ones that most felt the pain when money suddenly became scarce and their way of life was shaken to the core.

Over a hundred persons died in the queues. One such man in central Delhi was Saud-ur-Rahman, a 48-year-old poster designer. Standing in a bank queue for the third day in a row, from early morning till late afternoon, he suffered a massive heart attack and was brought dead to the hospital by his friend.

"Our child has gone. We couldn't speak to him one last time. Why would I want to speak about him to others," his 70-year old father Ahmed Rahman told IANS before shutting the door and cutting off any more queries. The pain felt by the father was as real today as it was a year ago.

Shiraj Ahmed, the friend who took him to the hospital, said that no one from the ruling party came to express condolences or offer an apology. Shiraj had given Saud some money and told him not to go, perhaps sensing the desperate situation he was in, but he insisted he had to take out money or the family would not be able to manage.

In many cities, people recalled the harrowing time they underwent to withdraw their hard-earned money, day after day.

"The dividend of the hardship we faced was expected to be moral. But, one year down the line, what we got as retired persons is receding interest income," says retired central government employee Bankim Chandra Roy.

"I had to go to the branch four to five times to convert about Rs 10,000 of demonetised notes; one day, I fell and injured my head," says the pensioner. "I used to draw my pension in the first week of the month. But when demonetisation came, I just could not draw my pension and really had to struggle to manage family expenses," Roy, a resident of West Bengal's Hooghly district, told IANS.

For a large number of working men and women it was a loss of income as they stood in serpentine queues at banks to exchange the spiked notes for new ones.

"It was as if somebody had suddenly snatched all my money. I had to struggle to get even Rs 4,000 in new currency from my bank to buy essentials," recalls Damodar Reddy, a pensioner in Hyderabad.

Caught completely off-guard, people did not know how to meet immediate financial commitments like paying house rent, children's school fees and other monthly expenses. But the most immediate need before the common man was to buy his daily needs like grocery and fuel with new currency notes which were elusive.

"People had to face hardships, especially those who were not tech-savvy and relied on cash for their daily transactions," Aashish Joshi, a chartered accountant, told IANS.

He wondered why so many had to go through so much pain. "It was believed that the dramatic move would have positive impact and the so-called black money would be cut back. But statistics released by the Reserve Bank of India (RBI) show that 99 percent of the demonetised currency came back into the system," Joshi said, wondering whether all the pain was worth it.

Anne Bangera, a 71-year-old retired teacher based in Mangaluru, recalls the demonetisation period being particularly painful as all her pension savings were held in cash. "It shook me as it meant all the money I had saved was of no value any more. I require to make monthly visits to the hospital for my health, but I no longer had any valid money," Bangera said.

An arthritis patient, Bangera lives alone at her home. "With bad knees, standing in those queues was particularly painful and I had to make several trips to the bank to deposit my old currency in return for the new notes. For the old and the weak, demonetisation was very difficult, as it just left us helpless," she said.

Rahul Chauhan, who runs a car garage in the Kamla Nagar area of North Delhi, says that for many days they were left with no money, even to pay the workers -- many of whom started staying away. "I spent many nights standing in the queues, and then the customers did not turn up to claim their vehicles since they couldn't pay cash," Chauhan said.

Kailash Sharma, a resident of South Extension in Delhi, said that going to the banks became a family affair. "My father, mother and me stood in queues for over seven hours each day, since one person could withdraw only Rs 4,000." Sharma mentioned that exchanging the cash at home became a highly challenging task for them.

Self-employed young men did not know how to manage for several weeks. Twenty-seven-year-old Prashanth K. (name changed on request), a wedding photographer in Bengaluru, said many weddings in the state turned low-key after November 8 last year. "All the money saved for weddings had become worthless and had to be exchanged. Even the withdrawal limit -- which was raised to Rs 2.5 lakh for weddings -- was useless because of the conditions attached," he said.

The result: "I had to spend many hours of each week in bank queues trying to exchange old Rs 500 notes I was paid." He could not refuse old currency as business would have vanished, although he did reduce his assignments. For several months, the photography business remained dull, despite the wedding season, he said.

Small start-ups, often lacking deep pockets, were no better off. Adnigam Private Limited, a hyperlocal marketplace launched only six months before demonetisation, was nearly knocked out of business. Its USP was same-day delivery in and around Hyderabad, but it was forced to retrench staff and cut operational and overhead costs. Raji Reddy Kesireddy, founder and CEO of Adnigam, said there were days when they had no orders. "From a spacious office in Ameerpet, we had to move to a small premises in Begumpet," he told IANS.

The situation was exploited by touts who suddenly sprouted up everywhere. D. Saraswati, a worker in a private school in Hyderabad, recalls that she had to part with Rs 300 to exchange each Rs 1,000 note. "Had I stood in a queue, my employer would have deducted a day's salary and still there was no guarantee that I would get the money. I had no other option," she said.

The pain was spread across the country for several weeks and months, but no one is sure today whether all the sacrifices by the common man and woman resulted in any real benefit. They look askance at the government, which has few answers.

(Mohammed Shafeeq can be reached at m.shafeeq@ians.in, Anand Singh at anand.s@ians.in, Bhavana Akella at bhavana.a@ians.in & Bappaditya Chatterjee at bappaditya.c@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Radhika Bhirani and Arundhuti Banerjee

Mumbai, Nov 4 (IANS) Sections of the Indian film and television which did business through banking channels remained largely on track after the November 8, 2016, demonetisation. But Bollywood's daily wagers -- spot boys, lightmen, casual actors and other temps -- continue to face its after-effects, say industry experts.

"Initially, our members faced a dearth of work, but that has settled down with time. It is those people who used to get daily conveyance of Rs 100 who are still facing issues," Gangeshwarlal Shrivastava, General Secretary, Film Studio Setting and Allied Mazdoor Union, told IANS.

Instead of daily getting Rs 100 directly from the production team for conveyance, the workers are now paid collectively for around 15 days -- which has affected their routine. "This is one aspect on which we have not been able to put pressure on producers because it doesn't make sense to transfer 100 rupees every day," said Shrivastava, on behalf of the 500 members of the organisation.

Ashoke Pandit, Vice President, Indian Motion Pictures Producers' Association, said demonetisation was no demon to the film industry as it largely deals in cheques and digital transactions, instead of cash.

"The daily wages in many cases, were turned into weekly or half-monthly payments and were being done in cheques by many producers since corporatisation happened. Use of cash was negligible in film productions, perhaps only for 'chai-naashta'... It's not what the industry used to be 10 to 15 years ago," Pandit contended.

Initially, demonetisation had spelt hard luck for Bollywood as movie buffs were reluctant to visit theatres -- and were instead increasing "footfalls" at queues outside banks.

Farhan Akhtar's "Rock On 2" failed despite the buzz around it, and the actor's father had admitted that the film's business "was obviously affected by demonetisation" after it was released just days after the decision was taken.

Some single screen theatres also shut down nationwide after the Rs 500 and Rs 1,000 notes were scrapped.

Gaurav Verma, Chief Revenue Officer of superstar Shah Rukh Khan's Red Chillies Entertainment, said not all releases at that time bombed.

"The demonetisation announcement may have affected a few films, but we released 'Dear Zindagi' a few weeks after demonetisation and the film did well at the box office. And let's not forget that just about eight weeks later, 'Dangal' came (on December 23) and became one of the biggest hits of all times," Verma said.

The move gave a push to a much-needed culture of digital transactions in the film industry, especially from the consumers' perspective, he said.

"The number of digital transactions for ticket bookings jumped to 50 to 60 per cent after demonetisation, and it turned easier for consumers to book tickets. Also, more digital transactions meant less manpower pressure, leading to a certain ease in business," he said, adding that it was a positive step that the industry was marching towards becoming a more organised digital sector.

The immediate response of a host of film celebrities on demonetisation was that it was important to support what was "good for the nation" rather than seeing its short-term impact on films.

Minister of Information and Broadcasting Rajyavardhan Singh Rathore had last year said black money was not being used in films as it used to be earlier. He was confident that, with demonetisation, there would be more transparency in film funding, and as a result, good cinema would get a boost.

Television industry veteran J.D. Majethia says the TV world welcomed the demonetisation move. "Initially, like the whole nation faced an issue, even we faced it. But when it came to our payments, there was no problem as such, because in our production house, every employee, including the spot boy, is paid by cheque. Therefore, we did not face any major problem."

Did any cost-cutting happen due to demonetisation?

"In television, finishing an episode shoot on time is one of the most important factors. Therefore, when it comes to unit members, we hire as per requirement. Cutting down on spot boys or lightmen does not bring a huge change in the budget if you have a huge set. But not finishing your shoot on time will surely affect the budget; so cost-cutting on unit members did not happen," he said.
(Radhika Bhirani can be contacted at radhika.b@ians.in & Arundhuti Banerjee at arundhuti.b@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Rohit Vaid

New Delhi, Nov 3 (IANS) The backbone of India's manufacturing sector -- micro, small and medium enterprises (MSMEs) -- had not yet recovered from the demonetisation move when the Goods and Services Tax (GST) came in to add to the pain, according to industry stakeholders.

"The base of the MSME pyramid is comprised of informal sector, which has traditionally done business in cash. With withdrawal of cash, this market seized up for a quarter or so. They (MSMEs) are limping back to normality," Anil Bhardwaj, Secretary General, Federation of Indian Micro and Small and Medium Enterprises (FISME), told IANS.

"The recovery is slow because of the new disruption in the form of GST. In the short term, there could be loss of business opportunities because of lack of capital in the informal markets," he said.

Bhardwaj said that the housing sector, which had more than 60 product categories linked to MSMEs, was drastically hit, both directly and indirectly.

According to D.S. Rawat, Secretary General of Assocham, except for some payment gateways, most of the sectors lost out.

"The impact of demonetisation would have evaporated, but the GST roll-out issues are being braved by some sectors, particularly the SMEs and the traders," Rawat told IANS.

In the Economic Watch report by Ernst & Young for September 2017, demonetisation has been blamed for an adverse impact on the economy in the short run, as its "benefits are yet to overtake" the costs.

"The government and people at large did have to bear considerable costs in the immediate aftermath of demonetisation. Some of these costs may be difficult to quantify, but objective evidence of the short-term costs is available in at least some important dimensions," the report said.

"There was an erosion of growth, output and employment," it added.

The overall economic growth is still contested, however, as some argue that the downward spiral in gross domestic product (GDP) growth preceded demonetisation.

"Though the GDP growth has been lower post the exercise, it will not be fair to conclude that demonetisation was the only factor responsible for this. The growth had started slowing right after the third quarter of 2016-17 and the trend continued post-November as well," said Ranen Banerjee, Partner-Public Finance, Economics and Urban, at PwC India.

Others like the EY's report indicate that demonetisation resulted in a "tangible adverse impact" on GDP growth.

"Real GDP growth has been falling steadily quarter after quarter since the fourth quarter of FY16, when it was nine per cent. It fell to 5.7 per cent in first quarter FY18, a decrease of 3.3 percentage points," the report pointed out.

"The two quarters that can be considered as the demonetisation quarters in FY17 were the third quarter of FY17 and fourth quarter of FY17. In these two quarters, the GDP growth rate fell to seven per cent and 6.1 per cent, respectively."

It mentioned that the downward trend in growth preceded demonetisation and was largely caused by an investment slowdown.

On the industrial production front, in December 2016, the Index of Industrial Production (IIP) had contracted by 0.4 per cent from a 13-month high of 5.7 per cent reported for November.

However, it rose 2.7 per cent in January 2017. The latest IIP figures for August showed that factory output grew 4.3 per cent against the same month last year on the back of robust mining and electricity sector growth.

According to the Ministry of Statistics and Programme Implementation, manufacturing output in the country in July 2017 had grown marginally by 1.2 per cent.

"The event clearly pushed the economy towards a higher degree of digitisation and financial inclusion. Accordingly, the digital finance sector seems to have gotten a push while over the longer term financial services should be the biggest gainer," said Anis Chakravarty, Lead Economist, Deloitte.

(Rohit Vaid can be reached at rohit.v@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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Kolkata/Chennai, Nov 2 (IANS) As bank customers suffered by waiting in long queues to withdraw their money from November onwards last year, another group of people -- bank employees -- endured the hardship of extended work hours and customer anger.

The employees, say bank unions, bore the major brunt of the sudden decision announced on November 8 last year by the Prime Minister.

"Banking personnel were rigorously working towards recovery of bad loans before the announcement of demonetisation, but the entire drive of recovery got derailed after the announcement as employees had to work day and night for giving service to depositors," Sanjay Das, Assistant General Secretary of the All India Bank Officers' Confederation, told IANS.

The bank unions said that of the more than 100 persons who lost their lives during the demonetisation chaos, over 10 were bank employees and officers.

Das said that despite the enormous amount of extra work put in by the employees, very few were compensated. "Over 50 per cent of employees and officers are yet to get their compensation for the extra work they did during the demonetisation period," Das said.

According to C.H. Venkatachalam, General Secretary of the All India Bank Employees' Association, the whole experience had left "a big scar in the minds of bankers". He said a million bank employees handling 1,000 million people coming to branches to deposit old notes was certainly a big task.

He said the bankers were abused by the general public for not disbursing new notes and diverting the same to others. "The RBI made matters worse by saying that sufficient number of new notes were disbursed to banks," he added.

He said the bank managements were not bothered about the problems faced by branch officials. The Reserve Bank of India (RBI) also asked bankers to work on Saturdays and Sundays. Officials in the branch were in office till late in the evening. Although some clerical staff, he said, were paid overtime, officers were left out.

Pradip Biswas, General Secretary of the Bank Employees Federation of India, said that not only employees but even the banks had not been reimbursed by the government for the cost incurred on recalibration of ATMs.

Criticising demonetisation, Biswas doubted that the whole exercise was done to unearth black money as claimed by the government. "The annual report of the RBI revealed that Rs 15.28 lakh crore, or 99 per cent of Rs 15.44 lakh crore of scrapped notes, came back into the system after demonetisation. Now the question arises: was the demonetisation scheme designed to convert black money into white?" Biswas wondered.

He said the government had described it as a fight against black money, funding of terrorist outfits and counterfeit currency. "But all their claims have fallen flat," he said.

"The scrapping of notes failed miserably in addressing its objective of striking a blow against the black economy. Instead, the side effect of the note ban has impacted the banking industry adversely," said Das, who is also the West Bengal State Secretary for the union.

The massive inflows of bank notes put a strain on the banks' daily operations and banking personnel were not able to focus on credit disbursement, which resulted in potential loss of banks' income, Das said, adding that bank credit growth came down to about 5.1 per cent in 2016-17 from an average of 11.72 per cent in the previous five years.

The apex bank too has mentioned that banks' preoccupation with exchange of notes and deposits was one the factors for low credit growth. "Credit growth touched a low in more than two decades on account of factors such as subdued state of economic activity, risk aversion of the banking sector... loan repayment by use of specified bank notes (old notes) and banks' pre-occupation with exchange of notes and deposits following demonetisation," said the RBI's latest annual report.

D. Thomas Franco Rajendra Dev, General Secretary of the All India Bank Officers Confederation, said that, initially, they had welcomed the government's move. "But it turned out to be a nightmare for the bankers."

He said people thought bankers were at fault for not disbursing the new notes, but "the RBI supplied new currencies only to private banks daily and not to government-owned banks".

Dev said the government should probe whether new notes found their way into the hands of industrialists and businessmen directly from the currency printing presses.

But some senior bank officers differ with the unions about the impact of demonetisation on the economy in the long run. "Right now people are complaining, but one thing is certain that (huge) money has come into circulation. Banks have accessed low-cost deposits and, subsequently, lenders have reduced the lending rates," said Punjab National Bank Executive Director Sanjiv Sharan.

One year down the line, economic conditions would improve, and with the government's thrust on low-cost housing and infrastructure development, credit demand would grow, he added.

"For the time being it may seem that demonetisation is disturbing the economy. But in the long run, it will help it," Sharan contended.

(Bappaditya Chatterjee can be reached at bappaditya.c@ians.in and Venkatachari Jagannathan at v.jagannathan@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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Chennai, Nov 1 (IANS) The adverse impact of demonetisation on the Indian economy would be transitory, according to global and domestic credit rating agencies.

However, the current slowdown could partially be attributed to implementation of the Goods and Services Tax (GST) introduced in July, they say.

"While the aim of demonetisation to curb the use of black money was in line with the government's broader reform agenda, the cash crunch it caused contributed to significantly lower real GDP (gross domestic product) growth in the March quarter," Thomas Rookmaaker, Director, Sovereigns and Supranationals Group at Fitch Ratings, told IANS.

"This negative impact on growth seems transitory, just like the effect on growth, because of GST implementation in the July quarter," he added.

According to analysts at the rating agencies, economic growth in India would accelerate again in the second half of the year.

"Demonetisation was a major structural change that the Indian economy underwent, which led to disruption on the demand and supply side and thereby the overall economy," Kavita Chacko, Senior Economist, CARE Ratings, told IANS.

Chacko said economic performance, as seen from the quarterly GDP growth, saw a sharp deterioration since the third quarter (October-December) in 2016-17.

"GDP growth (year-on-year) fell from seven per cent in Q3FY17 to 6.1 per cent in Q4FY17 and further declined to 5.7 per cent in Q1FY18, the slowest pace of growth in five years," she said.

This slowdown in the economy could partly be attributed to the disruptions caused by demonetisation. GST implementations too had contributed to the economic weakness, Chacko added.

Asked whether demonetisation has achieved its objective of curbing black money, Rookmaaker answered in the negative.

"The fact that 99 per cent of the bank notes have found their way back to the RBI (Reserve Bank of India) seems to suggest that demonetisation was not very effective in rooting out black money and reducing the informal sector," Rookmaaker said.

"Implementation of the GST may actually be more effective in formalising informal business, as it seems to help draw small firms into the tax net," he added.

According to Rookmaaker, the bounce back is likely to happen in the second half of the year. "It is still uncertain how long the drag on growth from demonetisation and GST implementation will persist. But our baseline scenario is that growth will accelerate again in the second half of the year. This seems to be supported by a sharp and fairly broad-based recovery in industrial production in August," Rookmaaker said.

India's sovereign credit profile would benefit from an improvement in government finances, which currently stand out as a major weakness compared with its peers, Rookmaaker said.

Other rating agencies say that except for two sectors, there would be no long-term impact of demonetisation. "We believe there is no lasting impact in most sectors, barring real estate and the gems and jewellery sector," Abhishek Dangra, Director in the Corporate Ratings Group, Standard & Poor's (S&P) Global Ratings, told IANS.

He said the companies in these two sectors, which traditionally relied significantly on cash transactions, had been forced now to make structural changes owing to policy level changes that limit high value cash transactions.

"Companies in the automobiles and consumer durable sectors have a high -- and an increasing degree of -- financing penetration, muting the impact of demonetisation, despite initial disruption. We expect demand/supply and the commodity price environment to have a greater impact on most sectors," Dangra added.

Saswata Guha, Director, Financial Institutions, at Fitch, said that the increase in liquidity with the banks had not been fully taken advantage of.

"I think the benefit to the banking sector in terms of heightened liquidity post-demonetisation was pretty clear. While funds are gradually finding way into the broader financial system (like asset management, insurance), the impact is still quite benign on banks from a liquidity perspective since credit growth remains pretty weak," Guha told IANS.

(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Sheikh Qayoom

Jammu/Srinagar, Oct 30 (IANS) Demonetisation appears to have failed to meet two of its most hyped objectives in Jammu and Kashmir -- dealing a severe blow to militancy and curbing fake money.

In contrast to long queues of exasperated people waiting to exchange high value currency notes seen outside banks in other states, no bank in J&K witnessed such queues.

"Due to violence all around, the average Kashmiri never keeps large amounts of cash at home. This is the reason that when people outside the state were losing sleep to get currency notes exchanged, Kashmiris did not rush to the banks here", said Elizabeth Maryam, a teacher of economics in Srinagar.

One of the objectives of demonetisation was to ensure that cash resources for militants would dry up. Ironically, Kashmir has witnessed more incidents of militancy after demonetisation than before it.

"We do not believe demonetisation has seriously affected militancy in the state. Logistics like shelter, passage and cash are mostly routed through over ground workers and sympathisers of militants and those who could arrange high value notes in the previous system are doing so presently as well", said a senior intelligence officer here who did not want to be named.

When asked about the fake currency the militants were believed to carry and circulate before demonetisation, the officer said that distinction needed to be made between fake currency circulated by ordinary fraudsters -- who use photocopying or equally shoddy crude methods -- and militants.

"Fake currency notes carried by militants come from across the border. It would be foolish to believe that sophisticated forgers would not use finer methods and better technology to fake Indian currency notes. If they made 'good looking' fakes of old high value currency notes, they can also do so with the new issues", the officer said.

One indicator suggesting the impact of demonetisation on black money was the initial slump in real estate trading in J&K. The hiccup, it appears, had been because of fear and confusion. "The prices of real estate have been rising here while these have fallen or remained stagnated outside", said a real estate dealer who did not want to be named.

Interestingly, there were no major raid or recovery of unaccounted high value currency notes in Kashmir after November 8.

Big business houses carried on their commercial activities as usual, although the cash crunch did affect their daily operations to a limited extent.

"No big business house in Kashmir showed signs of panic as happened in other states where laundering of black money was needed to keep a business afloat", said a prominent hotelier.

Militancy related incidents did not reduce, although stone pelting incidents came down due to anti-militancy operations, according to intelligence officials. "The theory that stone pelting and militant activities would take a beating has not been proved right," said an intelligence officer.

"Security forces have been battling stone pelting incidents as sporadic outbursts -- those are either spontaneous or sponsored, but believing that money has been the main motivation for such acts is stating too much", said the officer.

The state government too says as much about militancy in the state. In reply to a question by a BJP MLA in the state legislative assembly on whether demonetisation had affected unrest, Chief Minister Mehbooba Mufti said the government had received no report that would indicate that demonetisation had affected the unrest.

The chief minister had also said in her reply that no case had been registered indicating that fake currency had been used to stoke unrest.

(Sheikh Qayoom can be reached at sheikh.q@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Mayabhushan Nagvenkar

Panaji, Oct 30 (IANS) In India's holiday capital, demonetisation crashed the party for the tourism and travel industry, rocking the coastal state's gravy-boat.

Goa's tourism season begins in October as the winter sets in and winds up in March, with the advent of summer. Coming on November 8, demonetisation landed a sucker-punch bang in the middle of the lucrative season creating problems for travellers and other stakeholders.

"Foreigners saw a restriction on the flow of funds. Taxi fares shot up, making it difficult for them to travel within Goa. Indian tourists also faced restriction as far as funds were concerned," Edgar Cotta, proprietor of Miramar Hotel in the state capital, told IANS.

He said major negative signs emerged when booking cancellations by foreigners and domestic tourists started happening.

Goa receives more than six million tourists every year with half a million visitors hailing from European countries who visit Goa to escape the harsh winter back home.

John D'Souza, head of operations for inbound travel for Eastbound Group, said that soon after the prime minister's announcement, the situation turned desperate. "Czech and Slovakian travel agents were travelling to Goa for the first time. They did not even have money left for a coffee. And they were supposed to promote Goa and India as a holiday destination for tourists in their respective countries. Imagine what impression they carried back," D'Souza told IANS.

The Goa Tourism department, however, does not agree with omnipresent tales of woe, insisting that demonetisation barely caused "initial hiccups" even as tourism inflow stabilised within one month.

"In fact, the distress of demonetisation did not really affect Goa in any way. Except for some initial hiccups due to cash-crunch, tourists continued to visit Goa and accepted alternate modes of payment and facilitated the state's initiative for a cashless society," Tourism Director Menino D'Souza told IANS.

"It was only in the first month of the introduction of demonetisation that the industry witnessed some cuts in travel plans from domestic and international tourists, but within a month the scenario was back to normal and we did not see any huge drop in footfalls," D'Souza said.

Other stakeholders, of course, disagree.

"It created a negative impact on us. We had to suffer a lot to make ends meet and paying employee salaries was a total burden. As a result we had to lay off many good employees as business was poor," said Sheldon Remedios of Groove Events, one of the popular event management companies in Goa.

He said that convincing clients to go cashless was "very difficult". Now, the introduction of Goods and Services Tax was also not a healthy prospect, he said adding that "the forthcoming season also looks quite dull for us."

Many businesses benefit from the beeline tourists make for the Goa beeches. Take the example of Smile Factory, a dental clinic in Calangute beach village known as a dental tourism destination. Dr Rachna Fernandes, who runs the clinic, must have seen the smile being wiped away from the visitors' faces.

"They did not like standing in queue for hours for a couple of thousand rupees each day. They said they were here for a holiday, not to stand in queues for hours begging for their own money. It had scarred people. So those who were annoyed will not come back. Not this season at least," Fernandes said.

Several of her prospective clients, who had pre-booked dental appointments before arriving in Goa on a holiday, had cancelled their arrival plans after hearing about the demonetisation decision, she said.

But has demonetisation spread the practice of digital transactions in the tourism hub?

Despite demonetisation and the subsequent emphasis on cashless transactions, only five per cent of the transactions were carried out by cashless means, D'Souza of Eastbound Group said. "Ninetyfive per cent of the transactions are still in cash," he added.

(Mayabhushan Nagvenkar can be reached at mayabhushan.n@ians.in)

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Sanu George

Thiruvananthapuram, Oct 29 (IANS) The two main industries of Kerala, seafood and tourism, escaped the brunt of demonetisation, as did the information technology sector. But agriculture -- rubber plantation in particular -- suffered adverse impact, from which it is yet to fully recover.

Seafood exports from the state bring in a large proportion of Kerala's revenue. It showed no adverse impact. If anything, exports grew by 20 per cent in volume terms and 25 per cent in value during the first quarter of 2017-18 compared to the first quarter in the previous year. And tourism keeps the Kerala economy flying.

"Figures from the first quarter speak the story and it has done well," A. Jayathilak, Chairman of the Marine Products Export Development Authority, told IANS, adding that there was no impact of demonetisation on this sector.

He said seafood exports from the country stood at 251,000 tonnes valued at Rs 9,066 crore ($1.42 billion) in the first quarter of the current fiscal, up from 201,000 tonnes worth $1.17 billion during the previous quarter of 2015-16.

The I-T industry also evaded any adverse impact, largely because most transactions in the sector were carried out through the banking channels. "On the contrary, demonetisation served to reinforce the industry's resolve to rigorously follow governance and compliance norms. Since the IT industry, from its formative stages, was not in the clutches of the tax-men, it developed as a legitimate above-board industry," said V.K. Mathews, a member of Nasscom and head of IBS Software Services.

Mathews said demonetisation was a bold move. "It is indeed daring, considering its scope and implication over such a large population, where corruption and noncompliance are part of the nation's culture -- India is the most corrupt nation in Asia and among the worst in the world, according to the recent Forbes report," he added.

The first CEO of Technopark and former Kerala State Planning Board member, G.Vijayaraghavan, told IANS that he had been a supporter of the demonetisation programme from the very beginning and continues to support it. "But", he said, "I feel the whole exercise could have been done better by taking into confidence all the chief ministers and the state finance ministers a few hours before it was announced, but without giving them the time to inform their cronies about it," said the technocrat.

He said 80 per cent of Indians did not have a problem with withdrawal limits as these were "much higher than what the majority required." He said the group that was most impacted was the politicians'.

He said that to conclude that the economy had failed because of demonetisation was like saying that black money was required for economic development. "I am unable to agree with that," he added.

The tourism industry too remained largely unaffected because most of the visitors make books through the properties or through agents before they arrive.

"If there was any issue, it was related to tourists who had to get Indian currency and also to those who already were in the state and had the notes that went out of circulation . For the business as such , I don't think there was a direct impact as few resorts collect cash from guests," said M.R. Narayanan, general secretary of the Confederation of Tourism Industry in Kerala.

ADD FIGURES HERE

According to official figures, foreign tourist arrivals in Kerala in 2016 were 103,800, up from 977,479 in 2015, and domestic tourists grew by 5.67 per cent and touched 13,172,535 visitors. The total foreign exchange earnings from the tourism sector was Rs 7749.51 crore during 2016.

The major impact, however, was felt by the agrarian community, which includes small rubber farmers and also those who were engaged in cultivation of cash crops like banana and arecanut.

"We continue to be affected by demonetisation. It came when rubber prices were already low. It was a cruel jolt as rubber dealers had no money to pay us and this went on for long. For those who had no other source of income, it was a nightmare," said Thomas Mathew, a small rubber farmer in Kottayam.

The nightmare continued for those engaged in cultivation of banana. November and December are generally the months when fresh plants are sown. With little money to pay for the plants, many had to forego the season's cultivation. Daily wage earners were, of course, the worst affected.

"We survive by working in small homesteads and with no cash available, people used to avoid calling us to do the daily labour. This went on for several months and that hit us very badly. We wish to know who benefited through this foolish exercise," asked Sasidharan, a daily labourer.

(Sanu George can be reached at sanu.g@ians.in)
(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Vinod Behl

One key positive impact of demonetisation and RERA (Real Estate Regulation Act) has been that speculative investors deserted real estate and end-users/genuine buyers, who were all these years pushed to the sidelines, came out in large numbers. Now, it is the property consumers who are driving the real estate market, especially residential market, aided by the government's pro-industry and pro-consumer initiatives.

The step to promote affordable housing and according real estate industry status for the purpose of making easy and cheap funds available to the sector also helps.

Demonetisation has particularly boosted foreign funding. The transparency brought in by demonetisation, aided by RERA, GST reforms and liberalisation of FDI norms, has boosted the confidence of foreign investors, which is clearly evident from the spurt in foreign investments, particularly from pension funds.

This will inject much needed liquidity in the sector starved of funds. Targeting consumers, the government under the Pradhan Mantri Awas Yojana (PMAY), is providing substantial interest subsidy to home buyers. The clampdown on floating cash in the system has contributed significantly to curbing inflation which, in turn, helped RBI in cutting interest rates, thereby boosting home buying.

The proposed measures to liberalise FSI norms and rationalise stamp duty, will give further fillip to the residential sector, particularly affordable housing.

Demonetisation had a salutary impact on property prices by curbing cash transactions and checking speculative pricing, in turn increasing affordability, which is a key to achieve the government's flagship mission of 'Housing for All'. RERA & GST are further aiding demonetisation to control prices.

The key provisions in RERA, to speed up project completion, by checking diversion of funds through mandatory escrow account, stringent penalties to check project delays, together with the government's move to make all building sanctions online, will go a long way in checking time and cost overruns of real estate projects, thereby controlling home prices.

The ban on pre-launching of projects under RERA will also check artificial spurt in pricing. GST has come to tackle the flow of cash in the purchase of building materials by introducing input credit tax. Further, the government's plans to liberalise FSI norms, especially for affordable homes, and rationalising stamp duty will have a sobering effect on property prices.

But for some little lingering effect, economists and real estate experts believe that the overall downside impact of demonetisation has faded and its impact is not going to be there in the next quarter.

Says Ashwinder Singh, formerly CEO of JLL India & now CEO of leading real estate consultancy, Anarock Consultants: "Other than in terms of the initial confusion-induced decline in sentiment, the trend that is emerging now, points towards a recovery in buying sentiment with serious buyers already returning to primary markets."

The entire demonetisation exercise undertaken by the government and aided by other reforms, like Benami Property Act, RERA and GST, is to be looked at in the backdrop of the government's multi-pronged policy to create institutional and regulatory framework for speedy and steady growth of the economy. And at the centre of all these initiatives is real estate, which is a key contributor to GDP. Going forward, these policy initiatives will help make real estate more organised, transparent, credible and affordable, making the sector investor and consumer friendly.

(Vinod Behl is editor, Realty Plus, a leading real estate monthly. He can be reached at vbehl2008@gmail.com )

(Editors: The above article is part of a series of demonetisation stories leading up to November 8)

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By Quaid Najmi

Mumbai, Oct 27 (IANS) It was a year when India's realty sector was shaken to its foundation. A majority of the big, medium and small realtors across the country suffered from a severe liquidity crunch, stalled projects, elusive investors and buyers and a near-blanket stay on new projects -- especially in the lucrative commercial and luxury housing segments.

How did demonetisation result in such a severe impact on this segment?

"Essentially, demonetisation completely drained the markets of liquidity, which is still continuing. Banks have all the money but it is not being lent out. Nor is it adequately compensated by alternatives like digital growth," Niranjan Hiranandani, leading developer and Chairman of Hiranandani Constructions, told IANS.

Hiranandani, who is also President of the National Real Estate Development Council (NAREDCO), a powerful body of construction companies, admits that the realty sector took "a battering" at close quarters in the past 12 months. The high-investment construction industry was the worst affected.

The Goods and Services Tax (GST) and the Real Estate Regulation Act (RERA) have not helped either. If anything, they have come in as additional dampeners. The result is that the realty industry is passing through a phase where it seems to be all decked up and having to go somewhere.

Hiranandani said that, on an average, around one-third of the realty market was down nationwide, with the impact even higher in the north and the east, even as the cash crunch continues. The realty sector operated on the basis of unaccounted wealth, which may have taken a hit.

Also, the sector was largely unregulated, allowing builders to delay projects at their whim, and investing money raised from customers in other projects or land banks. RERA is expected to change all that, with strict penalties for violation of construction norms or fund use.

Jaxay Shah, President of the Confederation of Real Estate Developers Association of India (CREDAI), is quite upbeat about the changes that have spelled doom for the sector he is in. "Some of the most revolutionary reforms such as demonetisation, RERA and GST have proved to be a 'naya daur' or a new era for the realty sector," said Shah, who is Managing Director of the Gujarat-based Savvy Infrastructure.

Shah told IANS that the policy and legislative changes were "ushering in a new wave of growth" by increasing transparency as well as home-buyer and investor confidence. "These will eventually help in a sustainable growth of the sector and the economy."

Only agreeing partly, Hiranandani said there were some bright spots, even though most real estate markets were down. "The situation is bright in pockets; for instance, our Group sold the highest number of units in commercial properties in our career," he said with a smile.

But he added that very few groups -- like his own -- managed to scrape through after the initial shocks which hit the economy like a 'tsunami'.

Those representing the buyers fail to see bright spots in the sector.

Ravi sharma, National Secretary of the Confederation of Real Estate Brokers Associations of India (CREBAI), said while there was a more than 25 per cent drop in new property sales, the secondary or resale market saw a collapse of nearly 50 per cent, mainly because buyer confidence was rudely shaken.

"This has created a change in the level of buying. For instance, the middle-class is now opting for affordable housing, which was earlier being bought by lower-middle classes families. The luxury housing segment has practically crashed in Maharashtra, Tamil Nadu, Kerala, Karnataka, Telangana, Andhra Pradesh, NCR and other major markets," Sharma told IANS, adding that the situation was likely to become worse in the coming months.

Already, he said, there were market rumours that cash component in deals was making a comeback in substantial proportion as many cash-starved builders and developers were desperate to meet their commitments in the face of new regulations.

Although there's a substantial drop in interest rates for housing, this has attracted only a small segment of investors (not buyers). He feels that potential buyers with spare resources were now diverting to the stock markets for better returns.

Sharma said the chances of a turnaround were low. Most developers were saddled with up to one-third in unsold stocks, blocking up huge investments. With nearly a 40 per cent drop in sales in the largest market like Mumbai, almost all the builders were facing a severe financial crunch. Many are thinking of shifting to low-cost housing and to construction in tier-3 cities.

He said buyers were looking for reduced rates and some developers were trying to dispose of their unsold inventory with discount. "But how long can this go on?" Sharma asked rhetorically.

Hiranandani says a silver lining is visible, but many problems need to be sorted out.

"For instance, many foreign investors who are keen to enter are waiting for the right time -- GDP is down and the economy is not picking up, despite measures by the government. Once these are tackled, investor and consumer confidence would revive."

Shah is confident that sentiments in the sector are reviving.

"The provisions designed to protect buyers -- whose interests are at the heart of the reforms -- are helping to streamline processes and facilitate a transparent ecosystem for all. We are witnessing an overall recovery of the sector," Shah said.

That may be a tad over-optimistic, but every stakeholder in the sector may be looking out for the light at the end of what seems a long, dark tunnel.

(Quaid Najmi can be reached at q.najmi@ians.in)

(The above article is part of a series of ddemonetizationstories leading up to November 8)

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By Biswajit Choudhury

New Delhi Oct 23 (IANS) While the immediate impact of demonetisation was seen in the long queues outside ATMs and felt through acute cash shortage, its anniversary is an appropriate vantage point to assess the less visible and generalised effect on the economy of what was easily the most disruptive measure post-Independence.

The difficulty in making a cost-benefit analysis is that the move was not purely economic, given the fact that the currency issuer Reserve Bank of India (RBI) had no role in the decision, as testified by former Governor Raghuram Rajan.

So demonetisation comes across more as a measure of political economy with the declared objective of curbing black money and countering counterfeiting and terror finance, and which appeared to have paid political dividend to Prime Minister Narendra Modi in the Uttar Pradesh elections this year.

Starting with the official figures, at the end of May, the Central Statistics Office announced that GDP during the fourth quarter, ending March this year, fell sharply to 6.1 per cent from seven per cent in the previous quarter, while growth for the year as a whole was also expected to decline correspondingly. India's GDP during the past fiscal grew at 7.1 per cent, at a rate lower than the 8 per cent achieved in 2015-16.

In terms of gross value added (GVA), which excludes taxes but includes subsidies, the growth came in even lower at 5.6 percent over the GVA for 2015-16.

Chief Statistician T.C.A. Anant sought to downplay the impact of the note ban, saying he "would caution against reading a single number that comes out after an event as being reflective of consequences of the event". At the time of releasing the previous quarter's GDP, he had said that this was based on figures on industrial production and only on the advance filings of corporates.

The numbers, therefore, had not factored in the informal economy, which accounts for an estimated 45-50 per cent of output in the Indian economy and employs around 85 per cent of the country's workforce. More importantly, this sector transacts entirely in cash and was the hardest hit by demonetisation, which withdrew 86 per cent of currency from circulation.

Former Chief Statistician Pronab Sen had said in March that once the informal sector numbers came in, the growth rate could go below 6.5 per cent, which turned out to be close to the actual figure.

At the same time, both the RBI and the International Monetary Fund (IMF) lowered India's growth estimates for 2016-17 by up to 1 percent, citing the impact of demonetisation.

This was not too far from former Prime Minister Manmohan Singh's prediction that the economy would be hit by around two per cent because of the note ban.

Rating agency ICRA said in a note earlier this year that "since the early estimates of quarterly GVA rely heavily on available data from the formal sector, which is expected to have weathered the note ban better than the informal sector, the third quarter (October-December) projected GVA growth of 6.6 per cent may not fully capture the impact of the note ban".

In October, the IMF said in its latest World Economic Outlook that India's economic growth for 2017 and 2018 will be slower than earlier projections. The report cited "lingering impact" of demonetisation and the goods and services tax (GST) for the expected slowdown during the current and the next year. The IMF projected India to grow at 6.7 per cent in 2017 and 7.4 per cent in 2018, which are 0.5 and 0.3 percentage points less than the projections earlier this year, respectively.

The World Bank too forecast that India's GDP may slow from 8.6 per cent in 2015 to 7.0 per cent in 2017 because of disruptions by demonetisation and the GST.

Former RBI Governor Raghuram Rajan, who, on being asked by Modi for his informal opinion, had said the costs of such a measure would outweigh any long-term benefits, while there were less costly alternatives to achieve the stated goals of demonetisation.

"On the short-term costs of such a measure, monetary economists would say that you'd see an immediate impact on activity. People who used currency, things would shut down for them... there would be an unrecoverable effect on economic activity," Rajan said here at the launch of his book "I Do What I Do".

Citing the cost analysis by metrics of demonetisation done by JP Morgan, Rajan said the GDP took a hit of around 1.5 per cent, which translates to a sum of Rs 200,000 crore.

"On the benefit side you have Rs 10,000 crore coming in, but you need a lot more taxes than that to really benefit," he said.

Coming back to the beginning, this is what Nobel winning economist Amartya Sen had to say of demonetisation: "It is a despotic action that has struck at the root of the economy based on trust. It undermines notes, it undermines bank accounts, it undermines the entire economy of trust. That is the essence in which it is despotic."

With demonetisation also designed to enlarge the tax base, an ex-IRS official's perspective on Modi's likely motive is provided by former Director of Revenue Intelligence B.V. Kumar, who writes in his book, "Underground Economy": "One reason could be that Modi has completed half his term and not a single initiative during his term has shown results which can be termed as 'spectacular' and 'vote spinners'."

Demonetisation, after one year, does not look as rosy as it was painted out to be by the image spinners in the government.

(Biswajit Choudhury can be reached at biswajit.c@ians.in)
(Editors: The above article is the second in the series of demonetisation stories leading up to November 8, the day note ban was imposed last year).

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