Wednesday, January 11, 2017

‘Demonetisation hits business hubs in Mumbai, Pune’

11 January 17

Says SBI Research report

PUNE: The government’s demonetisation exercise has hit 69 per cent of businesses in the country’s financial capital of Mumbai, the manufacturing hub of Pune and nearby areas. A survey conducted by the State Bank of India said “69 per cent of the respondents affirmed that their business has been impacted”.

“Overall the decline in business is less than 50 per cent for the majority of the businesses that were impacted. Construction sector and the informal road-side vendors seem to be the most hit with 55 per cent and 71 per cent respondents saying that the business got reduced by more than 50 per cent,” said the SBI Research report.

“Varied responses have been received from the textile/ readymade garments sector and the FMCG sector. Within the textile sector, shopkeepers dealing with retail segment have been more impacted than those in the wholesale segment. Moreover, the wedding season has been disappointing with sales dipping significantly compared to the last year wedding season sales. The gems and jewellery sector has also been hit with declining sales,” the report said.

Agreeing to this, a Crisil study said the demonetisation of large-denomination bank notes has caused short-term disruption in India’s economy and led us to downgrade our growth forecasts for 2017. The move has some potential benefits, but the positive effects are unlikely to be strong or last long enough to make a significant difference to government finances or medium-term growth prospects, Crisil said.

“The respondents were very clear that supply of only Rs 2,000 denomination notes without intervening notes of Rs 500 has resulted in more chaos,” the SBI report said.

SBI conducted the survey in Mumbai and Pune among different formal and informal business groups to ascertain the effects of demonetisation on their daily business and whether this move has resulted in increase in digital modes of payments. A total of 175 responses were recorded and analysed, of which 40 per cent respondents were from premier business locations of Mumbai and remaining 60 per cent were from Pune and nearby areas. This survey was conducted between December 30, 2016 and January 3, 2017.

According to the SBI report, the good thing is that prevalence of digital modes of payments in chemist shops and even in case of automobile stores has possibly resulted in only a marginal impact on their sales. Coming to the question of shift towards digital mode of transactions, around 41 per cent sellers already had PoS machines available even before demonetisation but their usage has seen an increase only post demonetisation, it said. In fact, 15 per cent moved to electronic payments, viz m-wallets, PoS in the ensuing weeks. This means that Rs 25,000 crore of cash based transactions has moved to digital in the last 2 months.

“This number could have been even higher because the behavioral shift has not happened yet and many merchants still prefer cash transactions when the transaction amount is not large. So they are mostly discouraging people to use PoS for small transaction value of say less than Rs 200 or so. Also, a number of merchants are facing connectivity issue at PoS machines.

“But all in all, this is a good beginning. There is still some resistance about moving towards cash-less payment systems but majority are contemplating shifting as soon as possible,” SBI said.

“Now merchants are quite enthusiastic to adopt the digital channels though they are facing certain challenges in the form of non/ less availability of PoS terminals and lack of training and knowledge,” it said.

The government should thus build incentives for banks investing in creation of card acceptance infrastructure by deploying PoS terminals/creating acceptance points, it said.

“We would suggest the government to very quickly take on board new merchants, particularly small and marginal traders, grocery shops, etc on digital platform by a more targeted approach. This could be incentivised and the same can be met by support funds from government,” it said.


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