November 8 was just like any other day until 8.20 pm which is when my phone buzzed with a message on WhatsApp informing me that the government had withdrawn Rs 500 and Rs 1,000 notes with effect from midnight. Next, my wife and co-founder at our clothing company, texted to inform me of the news.
I quickly checked my wallet to discover that I had only six Rs 500 notes to dispose of. Between my wife and I, we had just Rs 8,000 in the banned denominations. When I heard that ATMs would stop dispensing cash for a day or two, I considered stepping out to attempt to withdraw Rs 100 notes only to learn that everyone else had the same idea.
On Facebook, my timeline was filled with friends cheering Prime Minister Narendra Modi’s swift masterstroke against black money.
Week one: Black money business booms
That week, I got the occasional request from acquaintances and friends to accept a few of their old currency notes at a 20% lower valuation and launder them by showing them as retail sales at my stores prior to the demonetisation announcement.
Eager to sell their stocks in a market with dwindling takers, a few fabric suppliers my firm had never dealt with earlier also called up to offer to sell their stock for old currency notes, which they would presumably convert to new currency using agents later. I even got cold calls from such agents suggesting options through which I could launder for a discount any black money I had in banned denominations. Alas, the Lord had kept me away from any unaccounted for possessions.
The impact of the demonetisation announcement was felt in our stores over the next week. We have over 100 stores in 32 cities across the country. Consumption in these stores hit a new low. The week-on-week decline was by 35%. When I checked the performance dashboard that week, as I absorbed the shock, a colleague offered me a glass of cold water. I knew that I needed something stronger.
I spoke to people in high positions in the retail industry who said that consumer sentiment was damp and consumer spending was tightening.
Those days, I saw visions of low sales and piled up unsold inventory along with apparitions of suppliers lined up for payments for whom I did not have enough cash flow.
That was the first time I realised that irrespective of its success in unearthing black money, the government’s decision was going to hit consumption.
Week two: Shifting goalposts
The following week, even my staff started coming in late to work, having spent hours in queues at banks and ATMs to withdraw cash for their daily needs.
That week, when I logged in to Facebook, the torchbearers of the new revolution against black money had crawled back into the woodwork. Perhaps they realised that the so-called surgical strike against illicit income may have been a cavalier move at best. Neither the government nor the citizens seemed to know what was going on.
There was disquiet over what the economic or monetary policy of the government actually was. Surely, the government and its advisors were not that naive to assume that the evil rich kept their black money hidden away in bundles of Rs 500 or Rs 1,000 in the cupboard.
By then, the scarcity of legal tender made it clear that India’s currency printing presses were struggling to keep up with the demand for cash to replace the 86% of currency notes in circulation that had been sucked out of the economy overnight on November 8.
The daily notifications outlining arbitrary new alterations in the demonetisation policy rules, which included changes in withdrawal limits for businesses and individuals, made matters worse.
Its after-effects ran through our retail chain. Our business has always dealt in cheques and bank transfers, but those down the line are transporters, job workers, contractors and so on. Thus, even while we transferred money to our suppliers and contractors, because of cash withdrawal restrictions in place, they were unable to get the next links in their chain to work without the hard cash required.
Our fabric deliveries got delayed, our goods despatches have been pushed further, and the cycle of consumption has now stalled.
There is an India out there that is still not ready or willing to work with electronic methods of payment. They have basic phones and have never used an ATM. My ears are filled with advice on getting our maid, driver and doodhwala a bank account. But the fact is that they all have one. They just do not know how to actually use it.
Week three: A jump start
The third week after demonetisation was slow as well, but then we started running a promotional offer on our brand as a result of which, in a shrinking market, we managed to get customers to shift loyalties to buy more of our brand than they would have otherwise. The competition followed suit.
In fact, there is so much panic in the retail business now that malls have started requesting brands to go on sale in another two weeks advancing the traditional December 31 sale date.
Indian consumption, especially in upscale markets, is anchored around the wedding calendar. But now marriages are being postponed with alarming frequency thanks to cash withdrawal restrictions. This is going to have a cascading effect on sales too.
The demonetisation move seems like it was not thought through at all. The romance of meeting the Gates and Zuckerbergs of the world has influenced the government to accelerate the implementation of digital commerce and trade never mind that the person on the ground is completely unprepared. If demonetisation was indeed necessary, it had could have been better executed or implemented gradually.
India, we are told, will continue to progress economically, regardless of government. This, I know, does not hold true. One misguided man can stop the motor of the country, to quote the American novelist Ayn Rand.
We have enjoyed great macroeconomic growth so far, but this has been fuelled by consumption, and the market’s optimism of a better future. Today, the framework for sustaining long-term economic growth is not being strengthened, and the foundation that was laid down in the last two decades is withering away.
A country that interprets structural reform as policing wealth in all forms, and establishing totalitarian control of money, is not going to progress. It is not possible to treat criminals and the honest alike.
India has witnessed a much improved investment climate from foreign nations, but if there are indications of an economic slowdown, then the investment tap will soon be turned off and we will be unable to scale up many industries on our own.
Yes, the country needs to be protected against the misappropriation of wealth by corporations and individuals alike, but when you arbitrarily bring in laws that make the bureaucracy and the tax authorities all powerful, you regress into the dark ages of the licence raj.
India is full of archaic laws, many of which beg proper interpretation. The government needs to bring clarity in expression and execution and not permit authorities the liberty to bring in their own interpretations.
The last two months have also seen the prime minister’s photographs in advertisements for digital payments platform Paytm and telecom firm Reliance Jio. I see this as the involvement of the Union government in enabling those who are already winners in an industry, and not actually promoting competition and a better market climate, which is what propels true progress.
We are moving towards inverted totalitarianism, where economics dictates politics and gives more power to the state to serve its ends while maintaining a constant eye on the votebank.
Coming back to where I stand today, I have braced myself for a crash landing. I hope we all land safely, but my larger worry is that the plane will catch fire in the rough landing. After all, the Goods and Services Tax will soon follow. And the cockpit is manned by a pilot who is still grappling with the controls.
Jaydeep Shetty is the founder and CEO of Mineral Fashion, which manufactures and retails women’s westernwear under the name Mineral.