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Demonetization affects Kerala’s key sectors

Prime minister Narendra Modi’s 50-day deadline for re-monetization ends on Friday, but no end seems to be in sight for the crisis in the key sectors of the Kerala’s economy such as agriculture, industries and commerce, and hospitality. The cascading impact of demonetization is being felt by the state’s tourism sector, a major contributor to the state’s economy, as well.

Though the consistent flow of currency has helped ease the post-demonetization crisis to some extent, the fragmented retail sector too remains mired in a deep crisis.

Shortage of staff continues to be a major concern for the banks. As the employees have been working hard often late into the night ever since November 9, banks have been forced to put on hold their normal services including lending operations.

As the demonetization drive has led to a slowdown in consumer spending and paralyzed the commercial and industrial sectors, it is creating an enormous burden on the state exchequer. Acute liquidity crunch has also derailed salary and pension disbursal in the state. The decision came as a bolt from the blue for the realty sector with construction activities, especially housing projects of small-scale builders, almost coming to a standstill.

Certain institutions in the public and cooperative sector such as the Kerala State Cooperative Consumers’ Federation (Consumerfed) have made attempts to wade through the crisis by shifting to digital transactions. Many private commercial establishments too have initiated steps to go digital due to cash crunch in the wake of demonetization. Fed up with wasting precious time in long queues outside banks and ATMs, ordinary citizens have also started to opt for digital payments.

Of the State’s total 207 reserve bank currency chests, the select branches of scheduled banks, which are authorized by the RBI to facilitate distribution of notes and coins, 133 are held in branches of the State Bank of India and the State Bank of Travancore. As they are according to priority towards supplying cash to their own bank branches, most of the other banks have been severely hit by the inadequate disbursal of currency.

In fact, not a single currency chest is managed by Grameen banks in the state that cater to the credit and other needs of the rural community. As a result, they receive a shoddy treatment in cash allocation. With the union government putting a freeze on the functioning of Kerala’s robust cooperative credit society system which account for one-third of the commercial bank deposits, activities in the State’s rural economy has slowed down drastically.

Agriculture sector suffers

The demonetization drive has inflicted significant damage to the State’s agriculture sector. The prices of agricultural products have been hit in a big way as a result of the severe liquidity crunch. Due to currency shortage, wholesale traders have stopped procurement of farm products including vegetables that are witnessing a steep fall in prices due to weak demand.

Consumerfed survives

The co-operate consumer sector has managed to weather the demonetization storm so far by adapting itself to the changed scenario. Triveni supermarkets and Neethi medical stores under Consumerfed had been allowed to accept the scrapped Rs 500 and Rs 1,000 notes. As there was adequate supply of notes of lower denominations, revenue from the liquor business through outlets run by Consumerfed has been stable.

The decision to issue coupon valued at Rs 10, Rs 50 and Rs 100 in the wake of cash shortage and offer discounts have helped boost sales. With all the outlets managed by Consumerfed getting card-swipe machines by the end of this month, the officials are confident of overcoming the fallout of demonetization. Notably, Consumerfed turned profitable this fiscal for the first time since 2002, registering a profit of Rs 32 crore.

Bevco sales fall

Kerala State Beverages Corporation Ltd (BEVCO) has suffered a loss of Rs 140 core since November 9, the day demonetization came into effect, as compared to the sales registered the month before. The sales in November alone declined by Rs 10 crore when compared to the corresponding period last year.

Cooperative societies take a hit

Of the 14,000 registered co-operative institutions in Kerala, as many as 10,503 societies function satisfactorily. As per official figures, the average outstanding deposit base of each branch is Rs 19.9 crore and Rs 28,000 per individual member. Going by these statistics, the co-operative sector in the State accounts for over Rs 2 lakh crore in deposits. Since a society is being regarded as a single entity, the apex bank permitted withdrawal of cash up to Rs 24,000 per week.

Dull tourist season

In November 2015, domestic tourist arrivals into Kerala stood at 11,93,583. This November, the figures slumped to 9,82,369. Foreign tourist arrivals too declined to 82,079 this November from 89,883 during the corresponding period a year ago. In October 2015, a total of 1,311,865 tourists visited Kerala, that include 76,119 foreign tourists and 12,35,746 domestic tourists. In October this year, 1,381,231 tourists – 80,712 foreigners and 13,00,519 local visitors – arrived in the State. These statistics reflect the crisis and the panic triggered by demonetization in Kerala’s tourism industry which is tottering for survival.

Fishing industry crippled
The fishing industry which largely depends on cash transaction is severely crippled by the demonetization drive and the resultant cash crunch. A majority of fishing boats operating off the Kollam coast stopped venturing into the sea after the demonetization, say office-bearers of the State Boat Owners Association. A single boat requires at least 500 to 700 liters of diesel per fishing venture which will cost about Rs 40,000. The currency crunch coupled with huge labor costs make it impossible for the boat operators to survive as the sector is left to gasp for breath post demonetization.

Handloom industry struggles

Traditional cottage industries like handloom too have fallen prey to the Center’s demonetization measure. The minimum wage for laborers in handloom sector units range between Rs 175 and Rs 250. The daily requirements of these units including procurement of raw materials such as cotton yarn used to be met with the funds of cooperative societies. The restrictions imposed on the cooperative sector affected the handloom industry as well.

Hospitality sector feels the heat

The business of hotels and eating joints in the State has been affected due to the shortage of small denomination notes. Retail businesses, hotels and restaurants as well the road transport sector, that account for about 40 per cent revenue of the State’s economy, too are severely hit by the lack of cash in circulation.

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