Worried that the demonetisation exercise may hit the output of India's labour-intensive export sectors in the short-term, the commerce ministry on Monday said it will take up with the finance ministry a proposal to enhance the weekly cash withdrawal limit of Rs 50,000 from the current account for these exporters.
This followed various Export Promotion Councils (EPC) informing the commerce ministry that the demonetisation policy has resulted in difficulties in disbursing wages to seasonal & migrant workers in labour-intensive sectors such as agriculture, carpet, handicrafts, handloom, leather, textiles and engineering, in addition to problems in cash payment to truckers & their support-staff.
These EPCs wanted the government to raise the weekly cash withdrawal limit of Rs 50,000 to as high as Rs 5 lakh. However, the apex exporters’ body -- the Federation of Indian Export Organisations (FIEO) -- told the commerce ministry that the withdrawal limit may be increased from Rs 50,000 per week to a monthly limit of one per cent of the previous year's turnover of each company/firm. “The said (higher) limit can easily be operated by the banks as they have access to the balance sheet and turnover details of each firm/company. The supply of smaller denomination notes may also be increased,” FIEO said.
After holding a meeting with EPCs that lasted for over an hour, commerce minister Nirmala Sitharaman told reporters that she will soon take up with the finance ministry the demands put forward by labour-intensive export sectors to raise the weekly cash withdrawal ceiling of Rs 50,000 from the current account.
Sectors such as handloom, handicrafts, textiles and carpet employ a large number of seasonal and migrant workers who do not have a bank account, and therefore, their wages are paid in cash, she said, adding that even engineering sector firms procure some inputs such as scrap metal from people in the informal/unorganised sector and without bank accounts.
Citing the difficulties due to the government's surprise move to withdraw the legal tender status of high-value currency notes in the denomination of Rs 500 and Rs 1000 from the midnight of November 8, these labour-intensive export sectors said they will be reducing their production capacity by as much as 40 per cent in the short-term, which in turn will lead to a lower output. “We have assured the exporters that we will soon send our report to the finance ministry so that quick remedial measures can be taken,” Ms. Sitharaman said.
Economic losses
However, the minister said so far no one has quantified the economic losses incurred by the export sectors due to the demonetisation exercise. She added that the impact is unlikely to last beyond a fortnight as the government is speeding up the process of ensuring cash at the ATMs as well as taking other necessary remedial measures such as lower denomination notes.
Ravi Sehgal, Senior Vice Chairman of the apex engineering exporters’ body EEPC India, said: “This (weekly withdrawal limit of Rs 50,000) is inadequate and is affecting most of the small and medium scale units. Some companies have a weekly system of wages where workers seek payment in cash. Though the workers have bank accounts, they are unwilling to accept direct payment to their banks largely because if the amount exceeds Rs. 50,000 this would lead them to forfeit their subsidy benefits for below poverty line (BPL) account.” Besides, with the transport sector being affected by demonetisation, the movement of export cargo has been hit, Mr Sehgal said.
According to the FIEO, the demonetisation policy may lead to the economy slowing down particularly in the sectors primarily dealing in cash, but it would be a course correction for larger inclusive growth and greater push to Indian economy in the long-term. “For micro and small companies and those dealing with unorganised sector, payment of wages to workers is currently a challenge as the workers are not keen to take the wages through cheque. Many of them coming from distant areas may not have bank account at their place of work. Those exporters procuring in small quantities like fruits & vegetables from farmers or handicraft from artisans or sending goods for job work, are also reporting the same problem,” the FIEO said. It added that in some cases where firms were looking at capacity expansion, there are delays in construction work as contractors are seeking payments in cash to in turn pay their workers.
