An overview of adverse effects of demonetisation on micro and small scale enterprises: with special reference to Pune City

34

special reference to Pune City

Prof. Pralhad Prakash Joshi

Research Scholar, VMV Commerce JMT Arts & JJP Science College,Wardhaman nagar

ABSTRACT

A historical decision of demonetisation of currency notes of Rs. 1000 and Rs. 500, taken by

government of India on 8th November 2016. After demonetisation, several adverse effects come

into existence in various sectors in the country. Demonetisation policy has brought many negative

implications particularly on micro and small enterprises sector, banking sector, financial

institutions and socio-economic activities of people working in unorganised or informal sector.

Through the study attempts have been made to focus on the various adverse effects on these

sectors, with the help of primary and secondary information. The result of the study indicates that,

majority of problems faced by micro-small entrepreneurs and businessmen in unorganised sector.

Banking sector and financial institutions are also suffered by several problems due to

demonetisation.

Keywords: demonetisation, unorganised sector, micro-small entrepreneurs, banking

sector/financial institutions.

1] INTRODUCTION

On 8th November 2016 Government of India has declared that currency notes of Rs. 1000 and Rs.

500 would not be valid for any business transaction. Post demonetisation period, many negative

effects; consequences on different economic sectors of India came into existence. The policy of

demonetisation has brought several negative impacts not only on economic sectors, but also

badly effected on the socio-economic functions of the common citizens. The main effect of

demonetisation is on the economy of the country because it gives highly negative or positive

effects on the different economic sectors like industrial sector, service sector, agricultural sector,

construction sector and so on. In future, it is expected to witness the considerable level of

deflation, in the sectors like real estate, construction, unorganised sector, micro-small and

medium scale enterprises, banking sector etc. Demonetisation represents much more than

destabilisation, it has struck a body blow on the economic functions. Indian economy was

35

the production, slowdown in business, slowdown in employments etc, due to demonetisation.

Small-micro industries, banking sector hit badly. The informal or unorganised sector, which

conducts 40% to 50% of India's total manufacturing activities and service providing activities are

nearly collapsed.

With the implementation of demonetisation and considering the government's agenda to

improve economy, financial inclusion the present study makes an attempt to focus on the

adverse effects of demonetisation on the micro-small enterprises, banking sector, financial

institutions and unorganised or informal sector of India. That is, through this study attempts have

been made to focus on the adverse effects of demonetisation from the perspectives of

micro-small entrepreneurs, micro-small unorganised businessmen and bank officials.

2] REVIEW OF LITERATURE

i. D. K. Parmar and S. K. Dave (2017), have stated that, cancellation of legal tender money is

likely to impact on various sectors of the Indian economy. Through the study authors have

explained the term demonetisation and highlighted the causes of demonetisation. Authors

have highlighted the various impacts of demonetisation on the agricultural and related

sectors, auto and auto ancillary industries, real estate, banks etc. Authors have concluded

that, although the comprehensive long-term effects of demonetisation measures cannot

be ascertained right now, the overall economy is expected to benefit from degrees in

unaccounted cash transactions and removal of counterfeit currency notes, leading to more

efficient and effective tax collection and transparency in transactions. Authors have opined

that, they are short-term implications for cash-intensive sectors like real estate,

construction and consumption etc.

ii. S. M. Hasan, (2017), has pointed out that, demonetisation has adversely effected on job

creation by hurting micro-small and medium scale enterprises. The study paper based on

the secondary data collected from various newspapers, online journals etc. To assess the

effects of demonetisation on micro-small and medium scale enterprises, and to study the

effects of demonetisation on development and growth of small-medium scale enterprises

in India. Author has also focused on the fact that, how demonetisation effects on the

technological advancement of SMEs. Author has concluded that, the booming economy of

India, has now ground to a halt due to the demonetisation. In the opinion of author, all

indicators sales, traders income, production and employment are down small enterprises

lacking capital for running their business, are already closed down their business.

36

The study covers the banks in Veraval City of Gujrat. Through the study author has

explained the concept of demonetisation. To understand the impacts of demonetisation in

terms of positive or negative is the major aim of the study. Apart from this author has

identified those accounts which are highly affected due to demonetisation, and focus on

the otherness of online banking process among the bank consumers. Author has opened

that, as compared to previous two demonetisation, the present demonetisation is

successful. Author has further opened that, still as compared to short-terms more positive

impacts can be seen in long run on the Indian banking sector. Through the study author

has observed that, there are positive effects on the banking sector due to demonetisation,

and positive effects on the online banking transactions.

iv. S. M. Jaysudha and M. Thangavel, (2017), have stated that, due to demonetisation there

are any indications that had to be faced by the people engaged in the unorganised sector

enterprises. Through the study authors have attempted to focus on the various problems

faced by small-scale retailers, vegetable sellers, rickshaw drivers, grocery shop keepers etc.

due to demonetisation. This study is related to the Erode City of Tamil Nadu. The authors

have observed that, majority of the People's face the problems arisen due to

demonetisation. These problems were resulted in inconvenience to make small purchases,

waste of time at bank and ATMs, rush at bank, limitation on cash withdrawals from banks,

decrease in sales etc. Authors have opined that, this is not a permanent condition, and

economy of India is expected to recover soon after some months.

3] OBJECTIVES OF THE STUDY

i. To understand the adverse effects of demonetisation on micro and small scale

enterprises

ii. To understand the adverse effects of demonetisation on banking sector/financial

institutions

iii. To understand the adverse effects of demonetisation on unorganised or informal

business sector

4] SCOPE/LIMITATIONS OF THE STUDY

There are many economic sectors in India, adversely affected due to demonetisation. It is difficult

to take an overview of the effects of demonetisation on the sectors. Therefore, the scope of the

present study is restricted only to the micro-small enterprise sector, banking sector/financial

institutions and unorganised sector. These three sectors are backbone of the Indian economy,

37

done in Pune city only and may not present an overall scenario of the entire country.

5] GEOGRAPHICAL SCOPE OF THE STUDY

The geographical scope of the present study is Pune city only. Small and micro enterprises, banks

and unorganised business entrepreneurs have been selected from various suburbs of Pune city.

6] RESEARCH METHODOLOGY

For the study purpose, primary and secondary data were used. Primary data was collected

through questionnaires for micro-small entrepreneurs, bank officials and small businessmen in

unorganised sector. Primary data has been presented by using percentage analysis method. The

present study is descriptive in nature. Survey method has been followed for the study purpose.

Secondary data has been collected through, study papers, articles, published in the various

journals, magazines, periodicals etc. Convenience sampling method has been used for collecting

primary data. The areas covered were central Pune area, and suburbs such as, Kothrud, Hadapsar,

Yerawada, Bibwewadi, Dhankavadi etc.

7] SAMPLE SIZE

There were a total 150 respondents. 50 respondents were selected from each sector.

Small-micro-enterprises owners approached were 50, bank officials approached were 50 and small

businessmen, like rickshaw drivers, street hawkers, vegetable sellers, grocery shop-keepers

approached were 50.

8] RESULTS AND DISCUSSIONS

Table no. 1

Effects of demonetisation on micro-small enterprises (multiple responses)

Effects Frequency Percentages

Decrease in credit flows from financial institution 50 100%

Decrease in production capacity 42 84%

Significant loss in earnings 39 78%

Barriers in adjusting production schedule 32 64%

Barriers in cash payment of wages slashed salaries 48 96%

Shortage of working capital 50 100%

Decline in consumption/demand 43 86%

38

tremendous decrease in the credit flows from banks or financial institutions stated by 100%

respondents. There was a decrease in industrial output or production capacity. Micro and small

enterprises were badly hit by the cash crisis. This sector was also hit with significant wage

implications for its casual employees, stated by 84% respondents. In the opinion of 78%

respondents due to demonetisation, the daily earnings were totally hit; and there was a terrible

setback in the production level. The demonetisation was made impossible for micro-small and the

owners to adjust their production process/function as per the schedule. Due to inadequate cash

in hand, 96% respondents had faced the problems in payments of wages or salaries to the

workers. Since majority of the transactions in this sector are cash-based, and cash liquidity crunch

had likely caused a shortage of cash in terms of working capital stated by 100% respondents. Due

to lack of working capital, their daily functions badly affected and cause slowdown in production

process. The event of demonetisation indicated different picture in terms of labour turnover

which was caused to lack of production, and slowdown of production because of low demand for

products, customers were purchased products only if it is necessarily required. Therefore, there

was a tremendous decline in the conjunction power of people stated by 100% respondents.

Table no. 2

Effects of demonetisation on banking sector/financial institutions (multiple responses)

Effects Frequency Percentage

Difficulties in loan recovery 42 84%

Increase in non-performing assets 38 76%

Increase in credit risk 47 94%

Increase in market risk 43 86%

Barriers in loan disbursement 48 96%

To investigate about the effects of the demonetisation over the banking sector and financial

institutions is one of the major objectives of the study. As per the information provided by the

84% respondents, there was many difficulties faced by the banks in the loan recovery process;

because, borrowers have not cash to repay the loan installments. In the opinion of 76%

respondents, there was increased in the percentage of non-performing assets. Credit risk as being

increased, stated by 94% respondents. The credit risk has increased its bank borrower or

counterparty failed to meet its obligations in accordance with agreed terms. Due to

demonetisation, the ability of borrower to repay loan is decreased because of unavailability of

cash in hand, and therefore banks faced the problem of credit risk. 86% respondents stated that,

39

were faced market risks also. Fluctuation in agricultural industrial products were also a cause to

increase the market risk. In the opinion of 96% respondents, due to restrictions posed by the

Reserve Bank of India on cash payments, there were several barriers aroused in the process of

loan disbursement.

Table no. 3

Major effects of demonetisation on unorganised sector business (multiple responses)

Effects Frequency Percentage

Decrease in sales 50 100%

Difficulties in cash payments to suppliers 46 92%

Scarcity of small demonetisation of currency notes for daily

transactions

50 100%

Shortage of working capital 45 90%

Limited cash disbursement by banks 41 82%

Increase in credit sales 45 90%

There were many implications that had faced by the people who are engaged in unorganised

sector, such as grocery shop keepers, rickshaw drivers, vegetable sellers, street hawkers etc. due

to demonetisation. 100% respondents have stated that there was tremendous decrease in their

cells due to demonetisation. 92% respondents have faced many difficulties in cash payment to

suppliers, and while dealing with banks. Majority of them do not have a formal bank account.

Cash is only means of receiving and payment process. Demonetisation has created a huge

disruption on the daily activities of the people engaged in unorganised or informal sector, with

negative effects on the livelihoods. Apart from this, there was a problem of scarcity of small

demonetisation of currency notes for daily financial activities, stated by 100% respondents. Due

to inadequate small demonetisation currency notes, there is a lack of sufficient working capital

available with the 90% people working in unorganised or informal sector. 82% people faced the

problem of limited cash disbursement by banks.

9] MAJOR FINDINGS

i) On the basis of collective primary information it is found that, due to demonetisation almost

all the small and medium scale sector, financial institution and unorganised sector faced

several problems.

ii) Majority of small and micro entrepreneurs have faced the problem like- lack of working

40

the suppliers. Decrease in credit for entrepreneurs from financial institutions or from banks

is one another major drawback of demonetisation.

iii) On the basis of collected primary information from the bank employees or employees of the

financial institutions, it is found that, several problems are faced by them. Barriers in loan

disbursement, increase in credit risk and market risk are the major problems raised by banks

and financial institutions. Apart from this, barriers in loan recovery, increasing NPA are some

of the major problems faced by banks in the post-demonetisation period.

iv) Through the study, it is found that, small traders, small-scale entrepreneurs or professionals

are badly affected due to the demonetisation. Due to this policy majority of small

traders/professionals engaged in unorganised sector face the major problems like decrease

in sales, scarcity of small demonetisation currency notes for their daily business activities,

lack of working capital etc.

10] CONCLUSION

The present study provides the adverse effects of demonetisation on the various sectors like

small, micro enterprises, ranking sector/financial institutions and the small traders/businessmen

engaged in unorganised sector. On the basis of collected data from the respondents it is

concluded that, government should required to undertake an action plan with proper and

appropriate facilities before adopting such policy otherwise such type of action policy will make

negative or adverse effects on all the economic sectors and economic components like growth,

livelihood, daily wage employees, marginalised peoples who are least equipped with latest

technology.

REFERENCES-

i) Abhani Dhara K, (2017)," A Study on Impact of Demonetisation over the Banking Sector:

With reference to Veraval City", International Journal of Marketing and Financial

Management, Vol. 5 No.3

ii) D.K. Parmar and S. K. Dave, (2017)," Impact of Demonetisation on Major Sectors of Indian

Economy", International Journal of Scientific Research in Engineering, Vol. 1 No. 2

iii) S. M. Hasan, (2017)," Impact of Demonetisation on SME Sector", International Journal of

Advanced Studies, Vol. 2 No. 3

iv) J. Anupama and S. R. Krishna, (2017)," Impact of Demonetisation on Banking: A

Conceptual Study", International Journal of Economics and Management Studies, Special

41

v) S. M. Jayasudha and M. Thangave, (2017), "An Empirical Study on the Major Problems

faced due to Demonetisation by Small Retailers in Erode City", Journal of Humanities and

Social Science, Vol.1 No. 5

vi) K. M. Veenith, (2017), "Demonetisation Impact on Small Scale Entrepreneurs: A Srvey of

Retail Vendors in Ernakulam District", Asia-Pacific Journal, Vol.1 No.5

vii) P. Saravana K., (2017), "Demonetisation- A New Transition in Indian Economy", Journal of

Humanities and Social Science, Vol.1 No.5

viii) J. Bansal, (2017), "Impact of Demonetisation on Indian Economy", paper presented at,

International Conference on Innovative Research in Science, Technology and

Management, 22-23 January 2017

ix) P. Mahajan and A. Singla, (2017), "Effects of Demonetisation on Financial Inclusion India",

Paper presented at 6th International Conference on Recent Trends in Engineering,

Science and Management, 8th January 2017

x) R. Bhattacharya and S. N. Mehata, (2017), "Demonetisation-Worst Effected the Small

Traders", International Journal of Latest Technology in Engineering, Management and