8th November 2016; a day etched in the history books on the nation when Prime Minister Narendra Modi announced the demonetization of currency notes of Rs. 500 and Rs. 1000 in his 40-minute long speech. This decision not only caught the industrial giants off-guard but also affected the daily life of ordinary people as well. The reasons behind this hard-hitting decision were as follows:
- To eliminate black money sweeping in the economy
- To eliminate fake currency and reduce opportunities for funding of terror organizations
- To encourage ‘cashless’ economy and reduce corruption consequently
But, was it effective enough? Was it hard-hitting? Is demonetization really a mishap for the industries, especially manufacturing, as it is being propagated by the politicians in opposition or is just propaganda to gain support? Are the media houses’ arguments over the fluctuating economy because of demonetization true? Or, demonetization has really been a successful decision which has helped the manufacturing industry and will continue to be beneficial in the long run? Well, in this blog, we are going to analyze these points thoroughly and will map out the effects of demonetization on the manufacturing industry.
Before and After…
According to a report, the manufacturing industry was getting its chin up before demonetization but due to cash ban, it hit the bottom in the November-December 2016. The manufacturing industry was affected very badly immediately after the “notebandi”.
Yeah! Demonetization did create a downfall in the manufacturing industry when it was introduced. More than 1.5 million people lost their jobs. Manufacturers were forced to stop production midway because of the hike in prices of raw materials and services. The number of jobs created almost reached the floor.
But the decision was taken to help the industries achieve benefits, in the long run, to increase the productivity and transparency of the policies the government will introduce in support of demonetization.
And Yes! The decisions were right. If the facts were to be believed it shows that the decisions were taken for good. According to a global research organization, the Nikkei Manufacturing PMI showed a regular increase in the heights of the graphs in the year 2017. The improvement can be estimated by the fact that the PMI reached above 52 in April 2017, since it was even below 50 at the start of the year.
Also, in a survey conducted by a leading daily of the country, the results cemented this fact – a clear, white lie for many that the decision of cash ban was taken to give fruits in the longer period of time. According to the survey, though there was a mild decline in the manufacturing production in the last month of the fiscal year 2016, the average reading for the October-December quarter remained in the growth terrain. This clearly suggests that the contribution by the manufacturing sector to the GDP was in a positive stratum.
FICCI analyzed the situation and in its latest quarterly survey assessed the expectations of the manufacturers for the first quarter of FY18. The survey had responses from more than 300 companies from eleven major sectors. The results of the survey declared by the analysts are to be believed, manufacturing companies from Electronics and machine tools along with leather industry are going to be in a strong foothold in the near future.
It is an undeniable fact that there was a structural break in the sector during demonetization. But, it was all created by the panic that entered in the black money holders’ mind. The media reports creating a hoax added to this along with the baseless comments by the opposition for their political agenda. The researchers are clearly indicating towards the fact that there is a significant improvement in the manufacturing sector and it cannot and should not be falsified. It is time now to start gazing upon and enjoy the positive, the beneficial and fruitful side of this historic decision.
Written & Compiled by Faber Kishlay Krishna & Faber Mayuri Pandya