New Delhi, January 5, 2017
Though big transactions are happening in cash, it is early to say whether demand is picking up
Baleshwar Kumar, a 35-year-old mason from Hathras in Uttar Pradesh, and most other daily wagers last week returned to Paharganj’s Chuna Mandi, which serves as an assembly point for contractors, masons, building material suppliers, painters and plumbers. Kumar had to leave for his village soon after Prime Minister Narendra Modi announced demonetisation on November 8 and the market collapsed in the absence of cash.
“I returned to Delhi after some people here told me that the cash situation had improved and they were getting work,” says Kumar, who has grown impatient in the past month after failing to find work in the village. “It will take a little longer before things settle. But the demonetisation drive has failed as most of us do not have accounts and are paid in cash,” says Kumar.
The market wore a deserted look when Business Standard reporters had visited it one-and-a-half months ago. Now it is swarming with workers.
Official estimates suggest the Reserve Bank of India has pumped new currency worth Rs 5.9 lakh crore into the banking system. This increased cash flow has brought back smiles to traders and manufacturers and they have resorted to trade practices used before November 8.
“Business has picked up, and most of it is in cash. When the demonetisation move was announced, traders began issuing proper bills fearing prosecution. Things have changed since. Buyers are unwilling to pay value added tax (VAT) and service tax and traders are obliging them,” says a businessman in west Delhi’s industrial area. “This parallel economy will continue until the goods and services tax (GST) is rolled out,” he adds.
Two other Delhi based-businessmen confirm there has been a spurt in cash transactions. “Only 20-30 per cent is in white and rest in black,” says Manpreet Singh, a Paharganj-based trader.
The rise in VAT collection in November and subsequent decline in December suggest traders and manufacturers are not issuing proper bills to buyers. According to the Delhi government, VAT collection in November rose by 15 per cent to Rs 2,025 crore but fell to Rs 1,655 crore in December.
Analysts say the increase in cash will affect the use of mobile wallets. “The initial boom in mobile wallets and other digital payment options happened due to lack of other options. Once cash is back in the market, people will use it. However, people have seen the benefits of using mobile phones. Of course, in rural areas cash will always rule,” says Amarjeet Singh, partner, tax, KPMG in India.
“We have 900,000 street vendors as our members in the country and those using mobile wallets are less than one per cent. It is the responsibility of the municipalities to bring them on the digital platform,” says Arvind Singh, national coordinator of the National Association of Street Vendors of India. “There is a slight uptick in cash transactions as compared to November,” he adds.
Digital companies are, however, optimistic that demand for their products will only grow from here. “Cash transactions have become relevant again, but consumers have had a taste of the convenience and security of digital payments,” says Bhavin Turakia, CEO and co-founder, Zeta.
[The Business Standard]