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India demonetisation causes retail chaos

News, 22 November 2016
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MUMBAI: Brands are urgently implementing price cuts, cashbacks and incentives as India's demonetization initiative begins to bite retail sales.

Prime Minister Narendra Modi's decision early this month to demonetize Rs 500 and Rs 1,000 banknotes – which constitute more than 86% of the total value of currency in circulation – has thrown India into chaos.

Despite increasing digitisation, the country remains fundamentally a cash-driven society. According to a New York Times report, many Indians have stuffed their mattresses with the now-banned banknotes for decades to avoid taxation.

Now, the change has forced India's 'black money' economy into the open: consumers must swap these banned bills for new ones or risk losing their money altogether.

The move is a particular blow to retailers, who have just returned to full-price sales following the Diwali promotion period. While a period of adjustment was bound to be necessary, most categories continue to feel the effects.

According to India's Economic Times, footfalls at India's Prestige malls had dropped 20% at the weekend, with food court sales slumping 40%, fashion sales down 25% and hypermarket sales plunging 30%.

Digital wallet company PayTM has sought to cash in with an advertising blitz while fashion brands are investing heavily in online platforms, offering promotions, cashbacks and discounts to stem a crash in shopper footfall and save the post-Diwali October-December quarter from financial disaster.

"Post Diwali, we don't run promotions. But when suddenly 40% of the customer base disappears, then what do we do?" said Kavindra Mishra, managing director of Pepe Jeans in comments to the Times of India.

Analysts have noted that 'black money' is so prevalent in India that economic disruption to any business is unavoidable. Conservative estimates indicate that about a third of all business in India is fueled by black money, with real estate, luxury retailing, and trading services at the fore. All have slumped since the demonetisation initiative.

Data sourced from Times of India, New York Times; additional content by Warc staff

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