An Angle On Logistics Through Lens of Demonetization

The effect of demonetization has been felt on all the quarters of industry. The country’s logistics

sector is no different than others and it is also the vital cog in the wheel of Indian economy. Any

effect on it will have direct consequences on the rest of the industry.

In a bid to keep the supply chain uninterrupted following the demonetization of Rs500 and

Rs1000 currency notes, the Union roads ministry on Wednesday suspended payment of toll fees

at toll plazas on all the national highways till midnight 11 November by issuing a notice to all the

concessionaires and other fee collection agencies.

We are also trying to connect our toll plazas with e-governance which will ensure that people

don’t have to stop at the toll points to pay cash and can instead do it online,” said Nitin Gadkari,

minister of road transport and highways and shipping. Also, demonetization will dismantle the

widespread corruption in this sector, managing which takes up about 25% of the time of

operators.

The disruption in SCM could affect the direct prices of the commodities. “Had the government

not suspended the toll collection for the next two days, the prices of fruits and vegetables would

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have increased by 3-4 times the current rate due to the disruption in the flow of these

commodities to the market,” said Ramesh Agarwal, chairman, Agarwal Packers and Movers.

Cash Liquidity Turbulence

As per a DSP Merrill Lynch report, wholesale trade forms over 40% of the sales for the Indian

consumer firms. This channel mainly works on cash transactions and will likely witness liquidity

constraints in the near term which could disrupt the supply chain and impact growth in the

present quarter. Also, there could be short term increase in receivables for companies.

Consumers firms usually provide credit terms to the distributors, who in turn provide credit to

the wholesalers/merchants on behalf of their own accounts. So, due to overall tightening of cash-

liquidity in the supply chain, consumer firms may be forced to offer easier credit terms to the

distributors in the near term.

Effect on Tier 2 and 3 Cities

Rural and semi-urban markets which are largely cash driven can see a significant cut down on

discretionary spend. Impact is possible on the mass segment too, as it is largely driven by

traditional and rural channels.

Former chief statistician of India Pronab Sen said it is the informal sector that accounts for

around 40% of the economy which will be impacted the most, especially in rural India. The

situation could have been better handled by giving a longer period of time to phase out high-

value currency notes. “The impact in rural India will be much more due to the sheer logistical

difficulty for banks to reach out to depositors. It will also impact urban poor who depend on

daily wages,” he added.

However, current chief statistician of India T.C.A. Ananth said the disruption due to

demonetization in the economy is unlikely to be significant. “The rural economy has changed a

lot compared to what it is used to be 30-40 years ago. It is only a transitory phenomenon of

shifting from one currency to the other and is unlikely to have any significant impact on the

economy,” he added.

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One part of the story is the deflationary situation which can cause too little money chasing too many goods. While the other side indicates a positive role in curbing inflation in the medium term due to lower money supply as unaccounted money, whereas, the logistics sector can see a large wave of digital transformation. “Narrowing down to the Logistics industry, it is high time that small and large vendors skip the dependency on cash transactions, which has always hampered the proficiency of operations, “said Dhruvil Sanghvi, CEO and Co-Founder, LogiNext.

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