New Delhi: The government's decision on November 8 to immediately ban Rs 500 and Rs 1,000 notes that account for 86% of all currency in circulation has impacted a raft of sectors. Consumers have turned frugal, causing a sharp drop in demand for goods and services. While farmers and small industries will bear the brunt and sectors like transport and real estate will visibly be in pain, several other industrial sectors will have to scale back services or production.
Lijee Philip, Shailesh Menon and Shelley Singh take a look at some industrial sectors whose growth will be hit in the short to medium term .
Nonetheless, in the last three weeks people have been managing with less cash--moribund Point of Sales machines are suddenly whizzing and frequently getting knocked out due to system overload. Orders for new card swipe machines have leaped 200 times. More and more debit cards are being used to buy goods and not just to withdraw cash. The three weeks since November 8 have seen a spurt in cashless transactions. That said, cash is likely to be back as the preferred option for transactions when things normalise.Shelley Singh examines the prospects of a cashless world, the experience of other countries and more.
Restaurant reservations in Delhi NCR dropped by 28%, in Mumbai by 7% and in Bengaluru by 2% Demonetisation is weighing heavily on the tourism sector, already under stress due to the sharp escalation in pollution n India. The number of inbound tourists visiting national monuments have dropped significantly after the note ban. Almost all these places only accept cash, which leaves no option for these travellers, says Rajeev Kohli , Senior VP, Indian Association of Tour Operators.“This ban has almost choked the tourism industry forcing many travellers to postpone or cancel travel,“ he says.
“There's demand for these products, but people do not have enough liquidity (money) to buy them,“ says Abneesh Roy, senior VP & FMCG-retail analyst at Edelweiss Securities.
Most equity analysts, whom ET consulted, expect FMCG sales to drop 35 ­ 40% over the next two quarters. The only silver lining being the fact that many FMCG companies have managed to collect “pending pay-ins“ (collection dues) from powerful wholesalers in old `500 and `1,000 notes.
Banks have received deposits in excess of `6 trillion since the note ban The government's demonetisation drive may puncture the earn ings of most banks this quarter.
With most staffers handling the `500 and `1000 note deposits, exchange and withdrawals, “revenue-yielding“ operations such as vending loans and cross-selling investment products have taken a backseat in most banks.
NBFCs and microfinance institutions (MFIs) are under severe stress as their collection cy cles (mostly in cash) have gone awry post November 8. Most NBFCs and MFIs have announced `collection holidays' till such time there's sufficient money in the system.
Sales down 60-70% Of the 1 million items shipped daily from e-commerce com panies, 60% are on cash-on delivery (CoD). “These are not getting placed. Suddenly priority for shopping is low,“ says Sreedhar Prasad, partner, ecommerce and startups, KPMG India.
While sellers say their business is down in the dumps, e-commerce companies are playing down the post-demonetisation impact. “Customers are adopting electronic payments at delivery and this has seen 10X growth,“ says an Amazon India spokesperson. Snapdeal says its digital wallet Freecharge has helped. A day after the decision to ban `500 and `1,000 notes, e-commerce companies capped CoD orders to below `1,000 with all purchases above this amount to be carried out by digital wallets or cards.
Sellers have a dif ferent view.Deepak Chopra, founder of Softek Surya, a seller based in Nehru Place, Delhi, says daily shipments to portals are down to 700 from 4,000. “I have 60 employees and monthly costs of `20 lakh. My sales have dropped to less than `5 lakh. How will I pay them?“ Hyderabad based seller Redlily and Jaipur based jewellery brand Dhora have also seen sharp decline in online sales.
The worse hit among e-commerce companies are the niche sellers-selling a single category like lingerie, eyewear, fashion-whose sales have dropped 60-70%. “People are buying only essentials. Besides, the large companies are equipping their logistics staff with card readers to ease payments in delivery. Smaller companies can't afford that,“ says Prasad of KPMG.
Overall market drops by 50-60% The luxury goods market already reel ing under the impact of global and local issues -from weak outlook to manda tory PAN requirement for purchases topping `2 lakh -got another hard knock due to demonetisation. The exception was the window between 8 pm and the wee hours of November 9 when buyers flocked to pick up expensive perfumes, scarves, watches, jewellery, smartphones (mainly iPhones) with the discontinued currency notes.
“The immediate impact is severe,“ says Anurag Mathur, partner and retail expert, PricewaterhouseCoopers (PwC) India.
Rajat Wahi, partner and head of consumer markets, KPMG India, believes there could be layoffs and the pain could last for six months.“After two quarters, pent-up demand will push sales,“ says Wahi.
Luxury buyers could also go into hiding as they wait for the implications of GST and budget proposals. “Some drop (in luxury sales) might be permanent even, as buyers wait to get clarity,“ says Wahi.
Price may drop below `28,000 per-ten-grams post December Zaveri Bazaar, the famed gold market of Mumbai, registers business worth `125 crore on an average day. Post the noteban, this has dropped to a mere `13 crore worth of sales per day.
“We don't have buyers now...all that we get are people dealing in recycled gold and some minor wedding purchases,“ says Kumar Jain, vice-chairman of the Mumbai Jewellers Association.
The demonetisation drive is expected to depress gold prices significantly. Currently trading at `28,750 (per ten grams), gold prices are expected to drop below `28,000 (per ten grams) post December.Jewellers are also worried about tax raids as there are widespread reports of black money hoard ers using gold to clean up their cash-in-hand (in the initial days of demonetisation).
After two weeks of “low business days“, things are looking up for most cinema houses as people have started using “plastic money“ to get their weekly celluloid fix.