In 2017, Demonetisation, e-payments and GST will be turning points for Economy

By:

Vijay Sardana

Today India and Indian economy is at turning point. This will be a new regime, where government is moving faster than private sector to adjust to the new realities. The move is clearly to make the system more transparent and with transparency, the accountability will also be fixed at all levels.

It is now visible that demonetization will have impact on every citizen and every organization. The true impact will emerge in 2017 when GST will take shape.

Let me place my assessment of the emerging situation in 2017 for you.

In this article. I will restrict my comments to few dimensions of bio-economy:

1. Impact on Seed, Chemicals and other inputs: Today, retailers are hiding the source of spurious material and related transactions because it is all in cash. Now, with GST he will be forced to show the source of material and name of the party with GST number. This will establish money trail and identification of source of the spurious material will be exposed. In case he is not willing to disclose the details, it will be offence under GST law and besides specific acts he is also liable to disclose details under GST Act and rules. This will stop spurious industry to a great extent. This will be a big opportunity for good manufactures and good for farmers as well.

2. Non-cash transaction in APMC mandies: Demonetization in will improve price realization for farmers: Farmers will be able to demand fair price and traders’ will be force to deliver amount to their account which can be calculated based on the quantity delivered. Any deviation in commitment for the price and price payed to farmer can be resolved with ease because all payment trails will establish the value of transaction. Now it is up to farmers are they will to accept the e-payment system. My experience says, there will be initial resistance due to ignorance and under the influence of vested interests, but soon they will adopt non-cash options and will be better off. This will put pressure of traders’ those who survived and thrived on unfair trade practices. My proposal to government is all APMC mandies must be debarred from cash transaction and only in special cases cash payment should be allowed. I hope district collectors and APMC secretaries will ensure non-cash systems in mandies in 2017.

3. Impact on Godown Owners and Traders: Today, there is lack of transparency about whose material is lying in godown and what is the value of material. All the material was stored in godown was under various heads. Now, every godown has to maintain proper record due to GST because he will be answerable for all the transaction including rent and other services, there must be GST number on every transaction between buyer and seller. Any raid by GST depart will expose the unaccounted consignments, its source of funding and hoarding of material without proper documentations. This will be offence under various acts and rules.

4. Impact on of spurious, adulterated and duplicate product manufacturers: I hope honesty will be respected by all in their business dealings. This will also make life tough for duplicate and spurious product manufactures because they all be recoding their transactions under GST systems. The chain which is supporting these duplicate manufactures like printers and dealers will be leaving trail of evidences against their own interest. This will be great time for good manufacturers.

5. Impact on Small and Cottage Industries: There will be some relief for them in GST Act and rules, but the bigger issue is more of their internal working systems. In initial phase, many SME companies may find it difficult to adopt to new reality because of lack of systems in them due to lack of delegation of power and decision making process. It will be good for them to identify vendors those who are willing to take e-payments and willing to negotiate terms and conditions which are mutually beneficial. In case they have to change their vendors those who are not willing to cooperate, please do so. Transparency and e-payment system will help them in getting new markets as well. My request to small industries is they should form their own club of like-minded entrepreneurs’ and do joint negotiation with various suppliers and take the benefit of collective bargaining power. Will they do it? It will all depend upon their comfort level with each other and their interpersonal relations. This is the time for SMEs to learn how to cooperate with each other in place to treat everyone else as competitor. Please keep in mind, market will not provide shelter to inefficiencies. This is the time when industry associations should play their meaningful role and act as facilitator for SMEs to adopt to the new reality by organizing handholding activities.

6. Service providers will have great opportunity: Now proper systems and skills sets and due to documentation at all levels manipulation may not work, it will create good opportunity for people with right skill sets and proper experiences. I am sure many service providers will be happy to offer their services to the companies looking to chance from ancient way of working to modern way of working. This will be compulsion not just the choice for them to survive in market. Now, chances of under-invoicing and over-invoicing and other form of manipulations will be less, I hope honest and transparency system will evolve which will respect professionalism.

7. Impact on International Trade: Changes in cost structures will have implication on international trade. There will be implication on competitiveness of Indian products. Indian agri-food industry has to rework about their cost structures with vendors and distributors. They have to renegotiate various terms and conditions based on new GST norms and tax structures. This will help them in reworking their business plan as well. This may open up new opportunity for out-sourcing in manufacturing and packaging operations. In case interest rates goes down, it will also help in reducing cost of capital. Automation and professionalism will also help in better cost structures.

8. Regulators and inspectors should also become transparent: Today, inspectors and authorities are not transparent in their dealings with manufactures, traders and public. Corruption and bribe is due to opaque system. No one knows which all samples were picked-up what happened to them. Why there is no transparency in the inspection system and laboratories. Why products of companies having HAACP certificate, good quality certificate from testing laboratories and FSSAI registration face rejection in world market. It means these systems are either ineffective or the certificates issued are fictitious. These are serious issues because these are not only hurting public health but promoting corruption. Any sample facing rejection must have detailed investigation and all agencies involved in approving these products must be made accountable. It is common knowledge that defective samples are cleared by paying bribe or inspectors demand money for not picking up samples or booking cases, otherwise why bad product should exist in market. Unless, it is known which all samples were found sub-standard and which is adulterated products consumers and public health is at risk because they will remain on shelf and people will keep on buying. Why FSSAI is not keen to make system transparent and communicate the facts will public the way in other countries are doing. Whose interest FSSAI is protecting and why? This will be the biggest question of 2017. We have to force FSSAI to change and bring transparency in its function when it comes to public health. 2017 will be the year to promote transparency in FSSAI and all its affiliates.

I am hopeful this country will not accept any manipulation and malpractice either in public sector or in government departments in coming days and it will be good for all.

Many food business operators will have to change their mindset and learn to about GST and e-payments and develop sensible transparency way of functioning. They have to relook at their supply chains as well. When farmers can adopt e-payment but why there is resistance among traders and small manufacturers to go digital? The challenge is of mindset nothing else. Let us be many existing players will not exist, if they are not willing to change. This will make opportunity and space for new and better players. Let us welcome this cleaning process as well.

Power of democracy supported by transparency and facilitated by technology will be at its peak in coming years.

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