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India's SMBs Struggle With 'Terrible Year' Since Demonetization

India's small- and medium-sized businesses (SMBs) have had a rough ride since the government's surprise demonetization initiative went into effect a year ago.

According to reports in CNN Money on Wednesday (Nov. 8), Prime Minister Narendra Modi's sudden decision to ban 86 percent of the paper currency in circulation at the time hit small businesses particularly hard, impacting tens of millions of SMBs, according to the publication.

One small business owner, factory operator Vinod Gupta, told CNN Money “it's been a terrible year.”

“Ninety percent of our business has been wiped out,” Gupta added. “Where there were 15 workers before, now there are three. Soon, we might have to ask even them to go home.”

The story is similar for many other small businesses that had dealt mainly in cash before the demonetization initative, a country-wide and government-backed effort to curb money laundering and other cash-based criminal activities. CNN Money noted, however, that SMBs were recently hit again through India's tax reform process, which has also caused challenges for small business owners working to adapt and comply. These struggles are due, in part, to restrictions on the technology and tools they can afford.

“[SMBs] are predominately cash-based, employ less than 10 employees on average and are outside the tax net,” said Praveen Chakravarty, Infrastructure Development Finance Company (IDFC) Institute analyst and economic commentator, in an interview with CNN Money. “They are informal because they can't afford the costs of formality.”

Economist Manmohan Singh, former finance minister and prime minister just before Modi took office, said both tax reform and demonetization have “broken the back[s]” of the nation's SMBs. While policymakers say these reforms have long-term benefits — including a shift to digital, and payments and electronic processes that are more efficient and secure than dealing with cash — reports say it's clear India's 100 million SMBs continue to struggle with the overhauls.



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