Daijiworld Media Network - Mangaluru
Mangaluru, Dec 29: The year 2016 is ending on a chaotic note in India with the effects of demonetisation still being felt across the country. While the impact of note ban on the country, in general, is common knowledge, Giridhar Prabhu gives a bird's-eye view on how the Prime Minister's sudden 'surgical strike' has affected Mangaluru.
Giridhar Prabhu, proprietor of Achal Industries and former president of KCCI, feels that Mangaluru, with its centuries of experience in handling currency transactions and being the birthplace of nationalised banks, will adapt to change quite soon and will accept modernity with greater advantage. According to him, entrepreneurially, Mangalureans will lead the change and change management.
Daijiworld caught up with Giridhar Prabhu to gauge the impact of demonetisation from the manufacturer's point of view. In an exclusive interview, Prabhu spoke on various dimensions of note ban and its implications for the several sectors in the city.
DW: Can you give us an overall picture of the city's economy and the implications of demonetisation for Mangalureans in the near future.
Prabhu: The city's economy has many dimensions. Its vibrancy is at different points of the 148 square kilometers it has, but the city's magic 5 square kilometres is its dominant aspect. It is vital to make a wider perspective that makes immigration viable, attractive and sustainable. There needs to be a "Mangaluru is In" and "In Mangaluru" agenda. Mangaluru has a conservative investment oriented and savings-minded citizenry. Its borrowings are also prudent.
Mangaluru has handled currency for centuries and it understands transactions very well; as bankers to the nation Mangaloreans run banks and central banks too. Mangalureans will adapt to change quite soon and will accept modernity with greater advantage. Entrepreneurially Mangalureans will lead the change and change management.
Mangaluru must lead in education and innovation as it has always been. It needs to adapt and improve where it needs most - in political, economic and social spheres and in a sustainable way.
DW: Has demonetisation impacted any part of the production cycle (procuring, processing, selling to wholesalers) and how will it play out till the coming year?
Prabhu: Yes. Producers in Mangaluru's hinterland took a hit as North Indian buyers shut down buying. On arecanut and cashewnuts which are 100 percent sold outside the state, the effect has been drastic. The local economy also took a hit in the short term as business driven by cash took a dive upto 90 percent and then recovered slowly. This is a national phenomenon. Mangaluru will get driven to digital and card economy.
DW: Would you then change production to other crops or look for different uses of areca, as there is a special GST on tobacco products?
Prabhu: The crops do not change, only the realisation drops.
How long will it take to ease the production process if there is a distortion?
Prabhu: A Mangalurean IITian, Sahil Kini who is in Delhi has developed a model and forecast that it will take upto the third week March for stabilising the process of replacement of notes. Mangaluru may adapt faster as it has the resources to do it. There are several aspects, not merely a distortion. There are deep effects in the informal sector and the side effects of attack on the discoloured economy. The income drop of wage earners is one aspect, but there is a disinflationary effect seen over the next few weeks.
The next effect would be loss to producers or manufacturers on loss of sales. This would be region specific due to inter-dependence. Exports would be not affected nor transactions arising out of public investments or expenditure.
DW: Shouldn't exports ideally have increased as the value of rupee has fallen?
Prabhu: Yes, exports have and will increase in the near-term till the middle of next year for cashews.
Which sector (and the specific trade) comprises most of the city's economy?
Prabhu: Thankfully, Mangaluru is 'heterogeneous', its economy is diverse and now into services. At its periphery are powerful drivers like the refinery, airport, railways, the port and the major industries which have sustainable turnovers. The small and tiny sector would be affected as it is an inter-dependent economy but should be able to adapt. Government sector is unaffected. The property market would see a downturn and probably affect the valuation and rental markets. Currently education services drive the city's economy, followed by trade and services sector. Mangaluru would be no exception on the hits and misses. It has to search entrepreneurally its way out to tackle the impacts.
How does demonetisation complement GST?
Prabhu: It will help organised sector and multinationals to go to a certain extent affecting severely small and marginal. This will get resolved when the situation is understood. GST will bring in long term economic efficiency in an economy known for its fragmentation. (The units and components that go into final products are fragment. Once integrated into the economy it's called as the economies of scale.)
DW: When will it get resolved?
Prabhu: It will get resolved by the middle of April when the currency gets back in the system.
DW: A bit more precisely, how would demonetisation complement GST?
Prabhu: GST will have a short term and long term impact which is continuous forever. The negative effects of demonetisation will disappear over time.
DW: What is the percentage of permanent employees in industries?
Prabhu: In Mangaluru it's high in manufactured and assembly industries.
DW: Which sector has the highest number of layoffs?
Prabhu: We have not heard of any layoffs per se. It might go unnoticed.
DW: Would the industry then reduce its output in the wake of reduced demands or supply the same amount? And if the production of the output is reduced, how long will it be till it bounces back to normalcy?
Prabhu: Yes, all multinationals and FMCG companies have cut back production equal to sales. It will get restored once normal demand starts for wage goods as well as investment goods.
DW: What is the definition of a medium-long term here?
Prabhu: Medium term is 6 months to two years. Medium and long term is mixed for 2 to 5 years. Long term is 5 to 20 years.
DW: What does the policy on demonetisation hold for local consumers?
Prabhu: Consumers at necessities level will adapt. Those accustomed to cards already will continue their shopping, and there will be a larger adoption of electronic money for necessities.
India's cash economy will not be overdoing or thriving as before but will be more wary. There would be a definite recovery once the restoration of currency and improvement of earnings take place.
The major impact of the political decision will be hugely positive once the side effects go away. There is damage to the real economy, but that is expected to be repaired and recovered in the medium to long term. Mangaluru may attract more quality investment than other cities.
DW: With groups like 'Legion' hacking Twitter accounts, and then claiming access to over 40,000 servers in India, encryption keys and certificates by some Indian banks - and the number of cyber frauds - Is it pragmatic to usher people into the realm of online payment gateways? How secure can one claim our e-commerce system is?
Prabhu: We will still have cash transaction in the system amidst the debates on the surety of cash and uncertainty of cards. Hard cash will be back in the system for legitimate transactions smoothly from April onwards. As for demonetisation, there is no wholesale demonetisation, but that of only specific currencies.