{"id":34584,"date":"2018-10-31T12:04:22","date_gmt":"2018-10-31T06:34:22","guid":{"rendered":"https:\/\/blog.forumias.com\/?p=34584"},"modified":"2018-10-31T12:04:22","modified_gmt":"2018-10-31T06:34:22","slug":"what-rising-imports-at-a-time-of-declining-manufacturing-indicate","status":"publish","type":"post","link":"https:\/\/forumias.com\/blog\/what-rising-imports-at-a-time-of-declining-manufacturing-indicate\/","title":{"rendered":"What rising imports at a time of declining manufacturing indicate:\u00a0"},"content":{"rendered":"<p><a href=\"http:\/\/indianexpress.com\/article\/explained\/indian-economy-narendra-modi-manufacturing-sector-demonetisation-gst-arun-jaitley-4892081\/\"><span style=\"font-weight: 400;\">What rising imports at a time of declining manufacturing indicate<\/span><\/a><span style=\"font-weight: 400;\">:\u00a0<\/span><\/p>\n<p><strong>Context:<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Demonetisation broke domestic supply chain, and disruption caused by GST compounded problems, meanwhile, with remonetisation, demand rose, and was met by imports.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><b><\/b><\/p>\n<p><b>Introduction:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It \u00a0tells about the state and level of expectations about the economy that even a 4.3% year-on-year increase in the index of industrial production (IIP) for August is hailed as a \u201cnine-month high\u201d.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Prior to the Goods and Services Tax (GST) , distributors and retailers resorted to \u201cdestocking\u201d-selling from \u00a0\u00a0their inventories rather than purchasing new goods attracting the existing state value added taxes, on which claiming credit under the new regime would be easy.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The overall industrial output fell by 0.2% in June and went up marginally by 0.9% in the following months, before recovering to 4.3% in August, seemingly confirms this hypothesis.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The manufacturing sector, which has a 77.6% weight within the IIP, registered a mere 3.1% annual growth in August.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Out of its 23 subsectors, around 13 posted negative growth including textiles, wearing apparel, leather goods, rubber and plastic products, chemicals, paper, furniture, beverages and tobacco-most of which are highly employment-intensive industries.<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/li>\n<\/ul>\n<p><b>What do these trends indicate? <\/b><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Manufacturing has clearly taken a hit from the twin blows of demonetisation and GST, one following the other.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The liquidity crunch resulting from demonetisation basically ended up disrupting domestic production supply chains.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Small and medium-sized enterprises (SMEs) in manufacturing clusters, paying workers mostly in cash, were the worst affected<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Many domestic manufacturing units, especially SMEs, had shut shop or significantly cut back on production. <\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/li>\n<\/ul>\n<p><b>What is Demonetization?<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Demonetization is the act of stripping a currency unit of its status as legal tender.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It occurs whenever there is a change of national currency.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Demonetization is necessary whenever there is a change of national currency. The old unit of currency must be retired and replaced with a new currency unit.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The opposite of demonetization is remonetization where a form of payment is restored as legal tender.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Demonetization can also be referred to as the process of moving people from a cash-based system to a cashless system<\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/li>\n<\/ul>\n<p><b>Background:<\/b><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">On November 8, 2016 Prime Minister announced that Rs 500 and Rs 1000 denomination notes will become invalid.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The government introduced new notes of Rs 2,000 and Rs 500 <\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">There was also no change effected in any other form of currency exchange like cheque, Demand draft (DD), payments made through credit cards and debit card.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The move was taken to curb the menace of black money, fake notes and corruption by reducing the amount of cash available in the system.<\/span><\/li>\n<\/ul>\n<p><b>Was this the first time the government \u00a0introduced demonetization?<\/b><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This is not the first time the government is following the policy of demonetisation of high-value currency.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The first instance of demonetisation by the government was implemented in 1946 when the RBI demonetised Rs 1,000 and Rs 10,000 notes.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Later, higher denomination bank notes (Rs 1000, Rs 5000 and Rs 10000) were re-introduced in 1954.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">However, Morarji Desai government demonetised these notes in 1978<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">According to data provided by RBI Rs 10,000 note was printed in 1938 and 1954 and was subsequently demonetised in 1946 and 1978 respectively.<\/span><\/li>\n<\/ul>\n<p><b>What are the consequences of demonetization?<\/b><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/p>\n<p><b>Positive consequences:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The growth in the direct tax base.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The switch in the financial holdings of households from cash to bank deposits<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">he increased use of digital payment <\/span><span style=\"font-weight: 400;\"><br \/>\n<\/span><\/li>\n<\/ul>\n<p><b>Negative consequences:<\/b><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">The main negative economic consequence of demonetisation has been the disruption of unorganized supply chains that are dependent on cash transactions.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Demonetisation lead to decline in economic growth to a three year low of 5.7 per cent.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">RBI report had revealed that nearly 99 per cent of the scrapped currency notes had come back to the banks, and it would become 100 per cent if cash in the pipeline is accounted for.<\/span><\/li>\n<\/ul>\n<p><b>How the government has planned to track evaders?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Although it is not completely clear how the government is planning to check and track tax evaders, the following steps have been taken to achieve the same:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Basic identification is made mandatory for any exchange or deposit of cash. Moreover, all the deposits made over Rs. 2.5 lakh will be directly reported to the IT department by the bank concerned.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">In order to check the conversion of black money into gold or jewellery, government has asked all the jewellers to verify the permanent account number (PAN) of their customers.<\/span><\/li>\n<\/ul>\n<p><b>What are the pros of this move?<\/b><\/p>\n<p><span style=\"font-weight: 400;\">The system is expected to prove positive for the economy in the long run:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">It will boost the formal economy in the long run as black money hoarders will not able to make their money white.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Middle class citizens may get benefitted from the short term fall in real estate prices.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">This move along with the implementation of GST is likely to make the system more efficient, accountable and transparent.<\/span><\/li>\n<\/ul>\n<p><b>Conclusion:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">For an economy on the path of reform, with many more reforms still to come, \u00a0long-term sustainable impact can be achieved only when we strengthen the policy-making process .<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What rising imports at a time of declining manufacturing indicate:\u00a0 Context: Demonetisation broke domestic supply chain, and disruption caused by GST compounded problems, meanwhile, with remonetisation, demand rose, and was met by imports. Introduction: It \u00a0tells about the state and level of expectations about the economy that even a 4.3% year-on-year increase in the index&hellip; <a class=\"more-link\" href=\"https:\/\/forumias.com\/blog\/what-rising-imports-at-a-time-of-declining-manufacturing-indicate\/\">Continue reading <span class=\"screen-reader-text\">What rising imports at a time of declining manufacturing indicate:\u00a0<\/span><\/a><\/p>\n","protected":false},"author":61,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"footnotes":""},"categories":[555],"tags":[],"class_list":["post-34584","post","type-post","status-publish","format-standard","hentry","category-test-1","entry"],"jetpack_featured_media_url":"","views":{"total":0,"cached_at":"","cached_date":1704922122},"jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/34584","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/users\/61"}],"replies":[{"embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/comments?post=34584"}],"version-history":[{"count":0,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/posts\/34584\/revisions"}],"wp:attachment":[{"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/media?parent=34584"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/categories?post=34584"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/forumias.com\/blog\/wp-json\/wp\/v2\/tags?post=34584"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}