INTRODUCTIONWhen a currency note of a particular denomination is said to be invalid by the government then it is considered as demonitisation. Demonitisation has negative impact on all the sectors but the MSME sector is the most affected as this sector is based on day to day payments and regular production.OBJECTIVES• To study the impact of demonitisation in the Indian economy• To analyse the effects of demonitisation on MSME sector• To know how the demonitisation effects in the development of the sectorRESEARCH METHODOLOGYThe given paper is based on the secondary source of data collected from various newspapers and E-Magazines based on the Indian economy.
IMPACT OF DEMONITISATION ON MSME SECTORThe importance of MSME sector cannot be overstated. According to the ministries estimates the sectors generates around 100 million jobs through 46 million units. With 38% of the contribution towards GDP 40% to the overall exports and nearly 45% of the manufacturing output, they clearly form the backbone of our Indian economyMost MSMEs are traditionally operated business which is run by the families for generations. There are two kinds of market players in this segment. One the businesses that were formed when the promoter saw the opportunity for the particular sector early on before any of the competitors started the business and became successful. The others are the players who could be able to do reasonably good work because of their underserved market and they have joined the race of business. An MSME entrepreneur is considered to be a master at the art of entrepreneurship. He would be able to find ways to get through with the compliances and taxes which made the officials to be happy as they were able to get the unaccounted benefits.
It was also noted that the return on investment which was paid on the taxes paid which was meager and the alternatives were also made available to the mindset which is frugal. This helped the parallel economy of black money to rise. This is a classic case of the poor process which is done by the government.The processes are always made to be interlinked and while constructing them the person must look at all the impacts. The processes will definitely need monitoring and the audit mechanism which is independent and also it cannot derive benefits from allowing incorrect ways in the system. All of these aspects somehow were missed. Demonitisation is considered to be a brave step where a large portion of the economy is running on cash transactions even though the Digital India movement is on progress .
Demonitisation is considered to be a carpet bomb because it leaves impact on everyone. The change of situation will not only takes time but it also slows down the spending process as the people affected would eventually save the currency with regard to the uncertain future. The MSME sector will also be affected as their regular payments would be delayed because the people tend to save the currency for the future. If the payment gets delayed then the company would have the intention to protect on what they have which means that their production will get reduced and they would purchase less amount of goods. By purchasing less their supply of raw materials would get decreased which results in less production.Reforms will also happen in the form of incentives which is going to happen soon.
The government is fully aware that it will take measures to restart the money wheel into the marketing again. This step is possible in several ways, the announcement of GST ( Goods and Service Tax ) and BTT, also elimination or reduction of Service and VAT. Taking necessary measures on taxes will encourage the people to spend without the fear of tax which is now considered as systematic loot for minimum returns.The growth of GDP moderation because of demonitisation is to be estimated at50bps at the lower end to as much as 300bps at the higher end. The impact of demonitisation on MSME sector can be presumed that the impact will be higher than the other sector of the economy. The impact is presumed large and hard because the economy is mostly dependent on hard cash.
Their cash cycle which is unvirtuous begins from an expense base that is almost cash based.This has resulted in degrees of disruption which is varying in the supply chain of business of all sizes. The impact of the aftermath is spoken by Tex Zippers, Vice President, Mudit Tandon says, “There are hiccups in the supply chain. For example, we could not find a specific grade of insulation and other materials we needed for our products for many weeks after demonitisation in the wholesale market”. FINDINGS• Demonitisation requires a wholesale rethink by the participants in the parallel economy. They must first need to think in getting into the banking system and the second step is digitalizing and the final is declaring.• On the capital front many MSME faced many difficulties in the appraisal of credits before demonitisation due to the large volume of unaccounted money transactions.
Once the initial setback phase is over and streamlining the business in their process and accounting, then only they will be able to access credit markets more efficiently• On the labour front there are some longer pains. Smaller business are dependent on the migrant labour, which is moving across India. Many of these workers do not have their proper ID cards or invalid ID cards. The lack of income in the period after demonitisation will force them to leave from work, hurting the continuity of business and increasing the hiring and training cost of labours.CONCLUSIONWith this move the MSME sectors are at the crossroads.
The strike on black money will uncage the animal of growth if it is supported properly by the digital payment system of India and mechanism to end corruption and also prove that the strike is fatal to the economyREFERENCES• http://www.google.co.in/amo/s/m.ecomictimes.com/small-biz/sme-sector/at-crossroads-msmes-feel-the-demotisation-squeeze/amp_articleshow/56306520.cms• http://en.m.wikipedia.org/wiki/Ministry,_Small_and_Medium_Enterprises • http://www.google.co.in/amo/s/m.ecomictimes.com/small-biz/sme-sector/all-evidence-suugest-unorganised-sector-smes-worst-hit-by-demonitisation-arun-kumar/amp_articleshow/61532781.cms• http://www.google.co.in/amo/s/your.com/2016/11/demonitisation-impact-indian-sme/amp