Demonetization - Tales of a CEO

A CEO’s tale: How Demonetization halved the profits of a multinational company that used no cash

In the chain of our business, there are links which are dependent on cash – and, therefore, susceptible to any cash crunch.

Take the business of metal scrap, imported in high volumes by traders in India. They sell the scrap to foundries, where it is melted and the metal extracted. A percentage of the imported metal scrap is pre-booked at a fixed price. The rest is retained for speculative purposes, and sold at a higher price to make a killing. This portion of scrap metal is bought and sold in cash. With no cash around, the demand for scrap metal contracted sharply, prompting traders to cut down on their imports.

Since the volumes of imported scrap metal dipped, we had fewer containers to handle. Demonetisation did not slash us in November because containers were already at different points of transportation. But the cash-crunch of November affected us severely in December.

This has caused a heavy blow to the trust that one has on the Indian Rupee which will be very difficult to recover. Remember that, something like this happened once in 1970s but that did not impact the common man like this one. So going forward, I wonder if people will trust the cash at home. I know I won’t.

Paper mills in India, because of stringent environmental regulations, depend on waste paper as raw material, which traders import primarily from the United States. They sell waste paper and insist on cash payments. That’s yet another weak link in the chain of my business.