Demonetisation: 56% of Kerala’s economic activity in doldrums, finds govt panel

The NDA government’s surprise demonetisation of Rs 500 and Rs 1,000 notes has hit both leading and struggling sectors of the Kerala economy hard, pulling the state’s economy down and affecting potential resource mobilisation, a study by a panel has found.

The committee, set up on 23 November, is headed C P Chandrasekhar of the Centre for Economic Studies and Planning of the Jawaharlal Nehru University.

“Cash-intensive sectors such as retail trade, hotels, and restaurants and transportation account for over 40 percent of the Kerala economy, and the primary sector accounts for another 16 percent of the economy. Thus, 56 percent of the economic activity of Kerala is immediately affected by the withdrawal of specified bank notes,” an interim report submitted by the five-member committee has said.

According to the report, the impact of demonetisation in terms of the cash deficit and its consequences has been particularly severe in the state also because of the distinct character of its banking sector, where the cooperative sector and the primary agricultural cooperative societies (PACS) play a central role.

Prime minister Narendra Modi on 8 November announced the decision to demonetise Rs 500 and Rs 1,000 notes, sucking out about 86 percent of Rs 15.44 lakh crore currency in circulation. As the RBI was not ready with the replacement currency, this resulted in a cash crunch, which has negatively impacted the daily lives of common people across the country and in turn the economy.

People have been given time until 30 December to deposit their old notes at banks and RBI counters. The government had also allowed exchange of these notes during the period, but did a U-turn and withdrew the facility from 25 November.

According to the Kerala government panel’s report – the first study on demonetisation and its impact – the notifications issued by the RBI, particularly the one that was issued on 14 November, which kept the cooperative banks and societies out of the note exchange process, were particularly damaging for Kerala.

The study estimates that there are about 14,000 co-operative societies in the state, including the state co-operative bank, the state agricultural and rural development bank, district co-operative banks, urban banks, primary agricultural and rural development banks and primary lending societies. These institutions are central to financial intermediation and inclusion in Kerala, the report has said.

Around 60 percent of all deposits are in the co-operatives in the state, according to the report.

Rolling out the figures, the report said besides not being allowed to exchange the notes, the access of PACS to currency was cut off. This forced these institutions to shut down their operations.

As far as the fisheries sector is concerned, cash crunch has hit the payments for fish auctioned at the point of landing, payments of wages by boat owners, supply to wholesalers and retailers, etc.

“As business has declined, workers get less work and lower earnings, and have had to get into debt to meet their daily expenses,” the report said.

In the tourism sector, the report estimates that the domestic tourist arrivals in November fell by 17.7 percent on year and foreign tourist arrivals by 8.7 percent. In October, the tourist arrivals had seen 5.2 percent and 6 percent increase respectively.

First Published On : Dec 29, 2016 15:48 IST