Demonetisation: Labour-intensive sectors seek higher withdrawal limits

NEW DELHI: Demonetisation and the chaos it has unleashed on the informal economy is top priority for the industry department, with senior officials gathering feedback from labour-intensive sectors such as leather, cement and toys.

Various industry representatives have told the Department of Industrial Policy and Promotion (DIPP) that the upcoming days will be tough due to the cash crisis, asking the government to increase withdrawal limit to prepare for this.

“This month, we have been able to manage since ours is a credit-based industry, but by December, we are expecting a slowdown among builders… Cash to pay the labourers is an issue,” said Krishna Srivastava, chairman, Zuari Cement.

One of the major demands of these sectors is that DIPP increase weekly withdrawal limit from `40,000 to `3-4 lakh to meet requirements of payment to drivers, labourers, cost and freight agents — all of whom do not have access to plastic money. Many companies have tied up with banks to use card-swiping machines for payment to dealers and sub-dealers.

The leather industry too is facing acash crisis in terms of paying workers, an industry executive said. They raised concerns of falling output in the coming weeks to the industry department.

The leather sector, for instance, saw a near 50 per cent drop in collection of hides and skins from smaller tanners all over India. “Our raw material comes from smaller towns where factories are unable to pay daily wages… Demonetisation was a good idea but execution has been painful,” said Israr Ahmed Mecca, director, Indian Leather Industry Foundation.

Companies have requested DIPP to help improve the cash flow through cooperative banks and increased withdrawal limits. DIPP will take up the demands of the industry with the finance ministry.

Earlier, in a meeting with Commerce and Industry Minister Nirmala Sitharaman, exporters too DIPP gets industry feedback on demonetisation had flagged off concerns on the government’s demonetisation drive with respect to procurement, transportation of raw material and payment of wages to workers.

The minister recently said the difficulties in payments to workers are likely to be over in 10-15 days. Sitharaman also said the demonetisation exercise will have an impact in the ongoing quarter but things will normalise gradually.

ET VIEW: Raise Limits of Withdrawal
It is likely that impulse buys like toys and leather goods might be affected, in the very short-term following demonitisation (DM). However, with a focused proactive policy on re-monitisation and shoring up of liquidity, it should be possible to overcome the cash crunch without further delay. Yet stepping up supply of Rs 2000 notes, without disproportionately large availability of Rs 500 notes, may actually defeat the very purpose of re-monitisation.

The larger denomination notes would be quite useless without readily available ‘change’. Besides, almost a month after DM, surely it is high time that the withdrawal limit was significantly raised.