GHAZIABAD: Strug­g­ling with customers unable to pay on time and plummeting sales, Indian small-business owner Ravi Jain fears the government’s crackdown on cash will have a much larger impact than predicted by top policymakers.

Jain’s bath taps manufacturing firm Supreme, along with many other Indian businesses, has been shaken by New Delhi’s shock decision last November to scrap 86 per cent of the cash in circulation. And it wasn’t certain when things will get back to normal as much depends on a revival in consumer spending.

“Demonetisation has developed a psychology among customers to spend only on essential items,” Jain told Reuters from his factory on the outskirts of the Indian capital. “We expect the cash situation to become normal in a couple of months, but we don’t know when this psychology will change.”

Asia’s third-largest economy is tipped to slow down to a near three-year low in the October-December period, losing the title of the world’s fastest-growing major economy to China.

The median estimate from a Reuters poll showed economists expect economic growth to slip to 6.4sss in the last quarter, lower than China’s 6.8pc in the same period and slower than a 7.3pc annual expansion in the September quarter. The data is due on Tuesday at 1200 GMT.

Prime Minister Narendra Modi’s currency ban, aimed at fighting tax evasion, corruption and forgery, had caused huge disruption to daily life, leaving farmers, traders and companies – reliant on cash transactions – in disarray.

Chief Economic Adviser Arvind Subramanian last month said the official GDP figures may not fully reflect the “real and significant hardships” experienced by the informal sector, in which an estimated nine out of 10 Indian workers are emp­loyed. But the pain, policymakers promised, will be short-lived.

The Reserve Bank of India (RBI) has called the slowdown a transitory phenomenon and expects a sharp rebound in economic growth in the next fiscal year as cash conditions improve.

Published in Dawn, February 28th, 2017