Cash crunch if lasts long can hit firms' Q3 results: CII

CII President Naushad Forbes has urged govt to increase weekly withdrawal limit for current accounts from Rs 50,000 at present to ensure adequate liquidity for businesses

Government's move to demonetise higher denomination currency notes is bound to adversely impact the third quarter earnings of corporates, particularly those involved in retail trade, unless the cash crunch is alleviated by the month-end, industry body CII said on Tuesday.

In an interview to PTI, CII President Naushad Forbes also urged the government to increase weekly withdrawal limit for current accounts from Rs 50,000 at present to ensure adequate liquidity for businesses, acknowledging that the move has certainly created "serious inconvenience" for most people.

"I think a few companies that rely on retail trade will show an impact in November, no question. The sooner cash gets back into circulation, the faster they will recover. If these shortages that you see today continue into next month, yes you will see their effect on third quarter earnings," Forbes said.

Government on Monday increased the cash withdrawal limit to Rs 50,000 per week for business entities having a current account for the last three months to pay wages and meet sundry expenses.

"We need to address the issue of the (withdrawal) limit that has been set for companies," the CII President said.

Forbes said that the policymakers need to also worry about the flow of black money transactions and find ways to reduce those, such that the future generation of cash on illegitimate basis comes down.

"This move of demonetisation is a very direct way of addressing the stock of cash but we need to address the flow aspect of it," Forbes said.

Sharing the chamber's perspective, he said: "We think it is the right move in the long-term interest of the country, in the short it has certainly created serious inconvenience for people at large".

However, he said that one needs to recognise the scale of the change that has been attempted, adding that given the current situation, banks are doing the best that they can. "We would all have liked to see things happen more smoothly".

"We took out 85% of the cash in circulation between 500 and 1,000 rupee notes, that is a huge proportion, it is 10% liquidity of the GDP which has suddenly been sucked out of the system overnight," Forbes said.

Even a week after the withdrawal of 500 and 1,000 rupee notes, there was no end in sight for most people as they continued to struggle for basic necessities waiting in long, winding queues outside banks and ATMs to get petty cash.