Monday, 19 December 2016

Demonetisation brings manufacturing to a halt

Auto Spare Parts Sector Takes Beating
Dec 19 2016 : The Times of India (Hyderabad)

About 30,000 units manufacturing auto mobile spare parts and about the same number of agro based industrial units have shut shop post-demonetisation with orders drying up. About 1.5 lakh MSME units (all segments) lined up along Jeedimetla, Balanagar, Shahpur, Maheswaram, Adibatla, Quthbullapur, Dulapally , Kukatpally and Cherlapally are on verge of shutting down operations after facing huge losses over the past one month. Also small players in retail textile, food processing and plastic industry are also bearing the brunt of demonetisation.

Despite the announcement that banks can give upto Rs.50,000 to commercial establishments, banks are not giving that amount. “The worst hit among the lot are the micro units with turnover of `10 lakh to `50 lakh. Also MSMEs across segments are hit badly. In most of these units, the workers are hired on a daily basis.“ added Gowra Srinivas, senior vice president, Federation of Telangana and Andhra Pradesh Chambers of Commerce and Industry .

Since the `micro' industry completely runs on cash, be it placing of orders, transportation, payment to workers or purchase of raw materials, units have seen between 50 to 70% loss of production over the month.“I am unable to pay to my labourers as none of them have bank accounts. They are refusing to come to work, forcing me to suspend operations,“ said Shaik Hussain, accessory manufacturing unit owner from Balanagar.

“With production at the manufacturing units dipping, the supply has gone down. Moreover, even the transportation network which operates only on cash is hit. In the whole process, I am unable to supply to my clients. I have not only lost a number of orders but even reputation in the process.“

My View:
The overall impact could be well over 1,000,000 people. Modi & Co wants brings these people into formal economy and tax them. What a ridiculous idea! 

While they don't pay income tax only they pay all indirect taxes levied on consumption. Even if Modi & Co decides to tax them, it will be meager which produces much work and little gain.

Modi as leader of the nation should realize the realities of the nation before heeding to the funny advises of economic pundits living in ivory towers about avenues to maximize tax revenues.

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