DEMONETIZATION IMPACT ON SMALL SCALE ENTREPRENUERS - A SURVEY OF RETAIL VENDORS IN ERNAKULAM DISTRICT

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1 DEMONETIZATION IMPACT ON SMALL SCALE ENTREPRENUERS - A SURVEY OF RETAIL VENDORS IN ERNAKULAM DISTRICT Dr. Vineeth. K. M. Assistant Professor of Commerce Maharaja s College, Ernakulam, Kerala, India Neena Merina Assistant Professor of Commerce Maharaja s College, Ernakulam, Kerala, India ABSTRACT Entrepreneurship refers to a process of action; an entrepreneur undertakes to establish the enterprise. In a developing country like India, small scale entrepreneurship plays a significant role in economic development of the economy. It has emerged as a dynamic and vibrant sector of the economy. Small scale retailing is the most common method of entrepreneurship widely adopted in Kerala. This retailing consists of general stores, specialty shops, second hand goods shop, street stall holders etc. Recently,small scale retailers faced several short term disruptions. Among them, the problems caused by demonetization policy were found to be significant. On the basis of analysis, we understood that the decision of demonetization was widely accepted by the traders but its planning and implementation was not at all satisfactory. People who operate on small scale were hit the most because their sales faced huge fall suddenly. But now most of the traders are using pay tm and other digital methods. As a measure the government can promote and make available more online facilities to small traders. Key Words: Demonetisation, Small Scale Retailing, Digital Money INTRODUCTION Entrepreneurship refers to a process of action; an entrepreneur undertakes to establish the enterprise. In a developing country like India, small scale entrepreneurship plays a significant role in economic development of the economy. It has emerged as a dynamic and vibrant sector of the economy. Small scale retailing is the most common method of entrepreneurship widely adopted in Kerala. This retailing consists of general stores, specialty shops, second hand goods shop, street stall holders etc. Recently,small scale retailers faced several short term disruptions. Among them, the problems caused by demonetization policy were found to be significant. The latest demonetization in India was the sudden announcement by Prime Minister of India on 8 th November at 8:30 pm that Rs.500 and RS.1000 notes would not be legal tender from midnight of 8 th November The RBI issued 2000 rupees notes and new notes of 500 rupees which were placed in circulation since 10 November This measure has been taken by the PM in an attempt to address the residue against corruption, black money and counterfeit notes. This move is expected to cleanse the formal economic system and discard black money from the same. With the older 500 and 1000 rupees notes being scrapped until the new 500 and 2000 rupees notes get widely circulated in the market, money supply is expected to reduce. This will result in cash transactions lowering in the short run, until the new notes are spread 13

2 widely into circulation, small scale retailing would face short term disruptions in facilitation of their transactions. The price level in non MRP products, groceries, fruits, snacks etc. is expected to be lowered due to moderation from demand side. The frequency and the amount of transactions involved with these sections of the economy necessitate cash transactions, thus, these segments are expected to have the most significant impact of this demonetization process and the introduction of new notes in circulation. STATEMENT OF THE PROBLEM The Government s recent policy of demonetization has impacted the small scale entrepreneurs in the short run. The Economic Times (2016) reported the agadia s statement that nobody has liquidity to do off-the-bill transactions. As retail segment generate cash transactions, there might be reduction in their sales. This paper attempts to study the impact of demonetization from the perspective of small scale entrepreneurs who primarily engaged in retail outlets. OBJECTIVES To understand the impact of demonetization from the perspective of small scale retail entrepreneurs. METHODOLOGY The present study is based on both primary data and secondary data. Primary data are collected through questionnaires which are distributed at random to 120 vendors according to convenience. Secondary data are collected from public sources such as journals, newspapers, internet and other magazines. REVIEW OF LITERATURE It is said that money is an idea that inspires confidence. When Prime Minister Modi announced that rupees with demonetization of 500 and 1000 would cease to be the legal tender from 9 th November, the whole country was stunned and the confidences of more than a billion Indian s were destroyed. The PM in his address to nation said that there comes a time in the history of a country s development when a need is felt for a strong and decisive step and propounded two primary reasons for this decision. One was to check enemies from across the border... using fake currency notes. The other was to break the gap of corruption and black money. The decision meets with mixed initial reactions. Finance Minister Arun Jaitley said that demonetization would clean the complete economic system, increase the size of the economy and revenue base. The mentioned the demonetization along with the upcoming Goods and Services Tax as an attempt to change the spending habit and life style. According to MD and CEO, ICICI Bank, Chanda Kochhar who told ET now, this move will definitely bring about a whole amount of transition to no cash or low cash kind of transactions.narayana Murthy, founder of the Infosys, welcomed the Government s move in its fight against corruption. Murthy also added that the dishonest will have to suffer absolutely that is the right thing. International Monetary Fund (IMF) issued a statement supporting Modi s efforts to fight corruption by the demonetization policy. Chinese state media Global Times praised the move and termed it as fierce fight against black money and corruption. Former PM of Finland and Vice-president of European Commission Jyrki Katainen welcomed the demonetization move stressing that bringing transparency will strengthen Indian Economy. The Indian Supreme Court while learning one among a slew of cases field against sudden demonetisation decision in various courts, observed that it appears to be carpet bombing and not surgical strike which govt repeatedly claims it to be. Nobel laureate Indian Economist Amartya Sen, severely criticized the demonetization move calling at a despotic action among the things. Former Senior Vice-President and Chief Economist of the World Bank, Kaushik Basu, called it as a major mistake and said that the damage is likely to be much greater than any possible benefits. Pronab Sen, former chief statistician and planning commission of India member, called it a hollow move since it did not really address any of the purported goals of lacking black money or fake currency. Noted economist and journalist, T N Ninan wrote in the Business Standard that demonetization looks like a bad idea, badly executed on the basis of some half baked notions. The demonetisation also came in for sharp criticism from media outside India, with New York Times saying that the demonetization was atrociously planned and that it did not appear to have combated black money, while article in The Guardian stated that Modi has brought havoc to India. 14

3 ANALYSIS AND INTERPRETATION Table 1 Profile of the Sample Category Types Frequency Percentage Bakery and Hotels Medical Shops Textiles / Boutiques / Baby Shops Type of respondent Veg. Shop / Provision Store Stationery / Gift House / Ladies Shop Book Stall / Computer Cafe Total Male Gender Female Total Below Age Group 30 to Above Total Table 2 Perception of Demonetization Policy Perception to the policy Mean Score p value (a) The decision of demonetization < ** (b) Planning and implementation of demonetization 1.97 < ** (c) Demonetization as a tool to curb black money 2.30 < ** (d) Demonetization as a tool to curb counterfeiting or fake notes 2.03 < ** (e) Demonetization as a tool to curb corruption 1.83 < ** (f) Demonetization as a tool to curb terrorism 2.13 < ** ** Significant at 1 % level of significance Inference: When we analyze the data on the basis of mean score, we can see that the decision of demonetization is widely accepted as good as its mean score is But the way of planning and implementation is not effective as reflected in the mean score. Table 3 Perception Level to Policy of Demonetization Perception Level to Policy Frequency Percent Low Perception Moderate Perception High Perception Inference: While analyzing the perception level to demonetization policy, 23.3% of the respondents are highly appreciating the decision and about 36.7% are least appreciating and the remaining have moderate perception. Table 4 Association with Socio-Economic Variable Variable P value Inference Type of Business Not Significant Gender Not Significant Age Group Not Significant Inference: Socio-economic variables like type of business, gender and age group are not associated with demonetization policy as its p value is greater than the normally accepted level of significance. 15

4 Table 5 Perception w.r.t. Problems of Demonetization Perception w.r.t. problems of the policy Mean Score p value Lack of Sales 3.50 < ** Scarcity of smaller currency denominations 3.37 < ** Long queues at banks 2.50 < ** Payment Problems to Suppliers 1.37 < ** Non availability of fresh 500 rupee notes 2.87 < ** ** Significant at 1% of significance Inference: while considering the perception with respect to demonetization policy, we can understand that the lack of sales is the major problem faced by the traders. It has a mean score of 3.50 followed by scarcity of smaller denominations (3.37) and Non availability of fresh 500 notes (2.87). Payment to suppliers are least affected by demonetization. Table 6 Perception Level of Problems Perception Level of Problems Frequency Percent Low Perception Moderate Perception High Perception Inference: While analyzing the problems of demonetization, 20% of the respondents are less affected and about 50% are highly affected and the remaining have moderately affected. Table7 Association with Socio-Economic Variable Variable P value Inference Type of Business Not Significant Gender Not Significant Age Group Not Significant Inference: Socio-economic variables like type of business, gender and age group are not associated with demonetization policy as its p value is greater than the normally accepted level of significance. Table 8 Friedman Test on ranks of different problems Problems Mean Rank Lack of Sales 1.50 Scarcity of smaller currency denominations 2.10 Long queues at banks 3.37 Payment Problems to Suppliers 4.83 Non availability of fresh 500 rupee notes 3.20 Source: Survey Data Inference: While we are ranking, we can see that the lack of sales is the most suffered problem of the respondents as it has the lowest mean rank 1.50 followed by scarcity of smaller denominations and Non availability of fresh 500 notes. Payment to suppliers are least affected by demonetization. Table 8A - Test Statistics a N 30 Chi-Square Df 4 Asymp. Sig..000 a. Friedman Test Since the p value is less than 0.001, there is significant difference in the ranks associated to the different problems. 16

5 Table 9 Ways to deal with cash crunch Measures Frequency Percent Payment through cards Paytm Inference: About 70%of traders are using pay tm and the rest are using cards as a measure to deal with the cash crunch. The data shows that none of the traders are using E-wallets. Table10 Perceptions on Improvements in Tax Collection Frequency Percent Not at all Rarely Sometimes Very Much Inference: About 46.7% of the respondents opinioned that tax collection may improve rarely and only 10% think that there will be improvement in tax collection. Table11 Association with Socio-Economic Variable Variable P value Inference Type of Business Not Significant Gender Not Significant Age Group Not Significant Inference: Socio-economic variables like type of business, gender and age group are not associated. The respondents do not think that the tax collection will be improved by this decision. 17

6 FINDINGS From the study, we can see that the decision of demonetization is widely accepted as the good but the way of its planning and implementation is not effective. It does not satisfy the purpose for which it has been implemented. About 40% of the respondents have a moderate appreciation regarding the demonetization policy and 23.3% of the respondents are highly appreciating the decision and the remaining are least appreciating. The major problem faced by the traders are lack of sales and payment to suppliers are least affected. About 50% of respondents are highly suffered by the problems of demonetization. From the analysis, we can realize that 70% of the traders are using pay tm and the rest are using cards for making payment to deal with cash crunch. Most of the traders think that tax collection will be improved rarely and only 10% are sure about the fact that tax collection will be improved. CONCLUSION The demonetization policy has been taken by the PM in an attempt to resolve against corruption, black money and counterfeit notes. On the basis of analysis, we understood that the decision of demonetization was widely accepted by the traders but its planning and implementation was not at all satisfactory. People who operate on small scale were hit the most because their sales faced huge fall suddenly. But now most of the traders are using pay tm and other digital methods. As a measure the government can promote and make available more online facilities to small traders. References