I am the Chief Executive Officer of a multi-national corporation, and I am still reeling under the demonetisation policy announced on November 8, 2016. I will neither disclose my name nor my company’s, lest there is a blowback. But the figures and facts that I will cite are all from our books or mentioned in our in-house discussions. It will give the reader a sense of the disruptive consequences of demonetisation.

The business I head is engaged in transporting containers packed with finished goods or raw material for export and import. Readers must have seen these containers, in colours of blue, violet, grey and white, loaded on trailer trucks groaning down the highway.

Containers arrive at seaports, and my company loads them onto trains to transport them to dry ports. Here, after custom formalities are completed, containers are unpacked and goods are dispatched on trucks to importers. At times, we undertake this last-mile delivery as well. Obviously, we also take containers from exporters and move them by rail wagons to seaports, from where these are shipped out.

The trains we use are our own, each of which has 45 wagons. We handle 10,000 containers a month, or 2,500 a week, to and fro from the hinterland to seaports. We pay a haulage charge to Indian Railways for using its facilities to run the wagons on its rail-tracks. This charge constitutes a substantial chunk of our operations cost.

Our rates, therefore, comprise operations costs plus our margin. Our profit before tax hovered around 2.5% of our revenue, obviously, before demonetisation took the fizz out of the business.

Expectations betrayed

We receive or make payments through RTGS [Real Time Gross Settlement] or cheque or demand draft. Cash is a no-no. This is precisely why when Prime Minister Narendra Modi invalidated Rs 500 and Rs 1,000 in old currency notes, business analysts said that companies such as ours had nothing to worry about. And besides, engaged as we are in transporting goods for export and import, it was assumed we would be insulated from depressed demands in the domestic market because of demonetisation.

Be merry, analysts told us.

It seems, in hindsight, such a cruel joke.

Or perhaps we have been oblivious of how our economy works and its dependence on cash. We have learnt our lesson, and we hope the prime minister has too. But this lesson has come at a stiff price – our profit before tax has contracted to 1.2%. Worse, it won’t rise for at least another six months.

Initially, even after the nation went into a tizzy at the prime minister’s demonetisation policy, we moved 9,500 containers in November. It was a slump by 500 containers from our average number, but, really, it was too minor a dip for us to grow nervous.

In December, however, it was down to 7,500 containers. That meant 25% of our usual business wasn’t coming to us. January has shown a rise, as slow as a cake being baked with inferior yeast. We moved 8,000 containers in January, give or take 200. We have had conversations with our customers to make our projections for the future. They all say they don’t expect any significant increase in the volumes imported or exported for the next six months.

Surprise, surprise, cash crunch hit us

Obviously, readers may wonder why a business not dependent on cash has taken a hit because of demonetisation. To this, I cite the cliché: “A [business] chain is as strong as the weakest link in it.”

In the chain of our business, there are links which are dependent on cash – and, therefore, susceptible to any cash crunch.

Take the business of metal scrap, imported in high volumes by traders in India. They sell the scrap to foundries, where it is melted and the metal extracted. A percentage of the imported metal scrap is pre-booked at a fixed price. The rest is retained for speculative purposes, and sold at a higher price to make a killing. This portion of scrap metal is bought and sold in cash. With no cash around, the demand for scrap metal contracted sharply, prompting traders to cut down on their imports.

Since the volumes of imported scrap metal dipped, we had fewer containers to handle. Demonetisation did not slash us in November because containers were already at different points of transportation. But the cash-crunch of November affected us severely in December.

Then again, as I have already mentioned, the last-mile transportation is by trucks. Few in India have large fleets of trucks. It is only they who are engaged in cashless transactions. All others insist on cash payments. Because of the cash crunch the truckers jacked up their rates, not least because their payments were to come in invalidated currency notes that would need to be converted into new ones at a discount.

Since the rate for transportation zoomed up, the cost of goods inclusive of freight charges increased. To keep intact their profit margins, the importer-exporter took to harrying us for a discount. After all, in popular imagination, multi-national companies can absorb lower rates. On many occasions, we gave in. It is better to keep your clients than to have them run to your competitors.

Credit cycle begins

Or take the refrigerated containers of buffalo meat. Abattoirs, or meat factories, don’t make payments to us in cash. But they purchase cattle in cash. Because of the cash crunch, a consequence of imposing a withdrawal limit of Rs 50,000 on current accounts in banks, buffaloes couldn’t be purchased in the same numbers as before from villagers who bring them to meat factories. An inadequate supply of meat meant a dip of 50% in volumes of refrigerated containers we were moving.

The factories, boasting of a good image, bought meat on credit from villagers. Good for them! But it isn’t good for my company – it has set a credit cycle in motion. Thus, my company has to move the containers of these factories on credit. There are some who owe us more than a crore of rupees and more. Money in the bank is better than what is owed to you.

Paper mills in India, because of stringent environmental regulations, depend on waste paper as raw material, which traders import primarily from the United States. They sell waste paper and insist on cash payments. That’s yet another weak link in the chain of my business.

Dismal global context

Readers may ask, why can’t mills export the recycled paper that they are unable to sell in India?

But remember, the global economy is witnessing a slowdown – Europe and China for sure, and the whimsical US President-elect, Donald Trump, continues to cast his gloomy shadow on the American economy. Also, Indian exports have been depressed for over 18 months, and continue to stagnate.

Imports have also been hobbled because of the adverse foreign exchange rate, which means importers have to pay more Indian rupees than before to buy a dollar. This is a disincentive for importers who will have to fork out a higher amount of Indian rupees to source the same amount of goods from abroad. Exporters could have worked the exchange rate to their advantage, but the global demand, as already pointed out, has put paid to that.

So, the adverse impact of the demonetisation policy has been magnified because it has been executed in the global context of a slowing economy. For sure, Modi has put the skids under the Indian economy for six months.

Just six months?

The cascading effect

I can’t be sure. Every company, mine included, has a growth plan. For instance, we had planned to buy more wagons based on our projection that business would grow. That will certainly be put on hold. I told my international bosses, “Let us try to save ourselves from drowning in the swirling black waters of demonetisation before we start building boats for the future.”

Our decision not to buy wagons means that the wagon industry will require less labour and steel. Expect retrenchment. Expect people to turn cautious while spending. Therefore, expect depressed demands for goods. The wagon industry’s lower demand for steel would mean that the steel industry won’t need coal and steel as it would have ordinarily. This is what is called a cascading effect.

I guess that is why former Prime Minister Manmohan Singh has said that the worst of demonetisation is yet to come. He is wise, that old man. His remark now haunts me. To overcome my blues, I have taken to singing the song the opening line of which is, “Cash baby, cash.”

This is a dramatised version of the story that the CEO narrated to the author. Before publication, this version was run past the CEO for approval.