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'Demonetisation' hits Indian spending

News, 11 November 2016

NEW DELHI: The decision by India's government to remove large denomination banknotes from circulation and to place limits on daily cash withdrawals from ATMs – as part of a crackdown on corruption and tax evasion – is having an impact on consumer spending across a range of categories.

With Rs 500 and Rs 1,000 notes no longer legal tender – they can still be exchanged at banks until the end of the year as new Rs 500 and Rs 2,000 notes are introduced – and cash withdrawals being limited initially to Rs 2,000 per day per card, malls and restaurants have been the first to feel the pinch.

The Economic Times reported that malls across the country had seen a 10-15% drop in footfall on Wednesday, the day after the notes were scrapped, and food outlets had experienced a 40% decline in business.

And while the medium term outlook is rather better, some observers were still anticipating a 12% dip in the eating out market over the course of the next three months.

Some categories face practical considerations. "Our average ticket size is about Rs 5,000 so people may not be able to carry many bundles of cash in their purses," said Vivek Bali, chief executive/India at Sephora, the luxury cosmetics business. "So there could be impact of 20-25% till it normalises in December."

Consumer goods manufacturers are bracing themselves for a lengthier slump – the market could drop 70% over the next six months on some estimates as a significant part of market remains cash-driven.

The chief operating officer of Videocon noted that 40% of purchases of domestic appliances and televisions in urban areas are cash and expected these sales "will take a big hit".

Longer term, however, the changes are likely to benefit modern stores at the expense of traditional ones as consumers begin to move away from cash to paying by debit and credit cards.

Meanwhile, mobile wallet and online payment brands such as Paytm, Freecharge and MobiKwik have been quick to promote their cashless services.

Data sourced from Economic Times; additional content by Warc staff