Note ban has negative impact on SMEs; large firms can benefit in long run, says ASSOCHAM Bizcon

Demonetisation of high value currency notes would leave quite a negative impact on small and medium enterprises, rural consumption and job creation in the immediate run while the large and well organized sectors of the corporate India stand to benefit in the long term horizon, the latest ASSOCHAM Bizcon Survey pointed out.

The contrast in perception brought out by the survey is quite stark. While 81.5 percent of the respondents felt the SMEs have been hit and would still suffer the lingering effect for one more quarter, an equal number said for large enterprises, the unprecedented measure of note ban the impact would be positive.

However, at a holistic level, a large number of respondents felt that the impact could be seen in sales volume declining in the last quarter of the current financial year. Same holds good for the order book position with investment graph not showing much of an uptick for the January-March quarter, retaining almost similar stance as in the previous quarter.

Even as easing of prices in vegetables and some other crops is also attributed to incidents of distress sale in the backdrop of cash scarcity, the Bizcon Survey found that 92 percent of the respondents said the demonetization would have a positive impact on inflation.

The survey does throw some paradox as well. While it said the note ban would lead to better outlook in the long run, over 66 percent of the responses pointed towards negative on investment, linked to issues like subdued consumer confidence and demand , particularly in the rural landscape.

"When the economy is in a state of flux, it is quite a challenge to get the real picture on the ground. Even though our survey does point towards some level of stress, the jury is still out and it would be quite a while before one can say with complete certainty whether or not the currency jerk was good or bad for the economy. For the present, the impact is seen on certain sectors, while others escaped. Hopefully, things would get normalized sooner than later with the Budget being seen as a big trigger," said ASSOCHAM Secretary General D S Rawat.

With regard to sectoral impact of demonetization, majority of industry feels that agriculture, cement, fertilizers, automobile, textiles, real estate and retail will have negative impact while power, oil and gas, pharmaceuticals, IT and electronics and infrastructure will have positive impact.

Some other important measures suggested by respondents to revive industrial growth are reducing cost of borrowing, contain trade deficit, SME Promotion, transparency in decision making, time bound settlement of issues, continued monitoring plan for implementation of projects, tax reforms for indirect taxes and lowering of income tax rate, land reform, law and legal reform and labour law reform.