Demonetisation Impact on Industries

The eve of 8th November, 2016 would be treated as the historic day in the Indian Economic history, Prime Minister of India Mr. Narendra Modi through his address to the Nation announced that INR 500 and INR 1000 currency notes would no longer be legal tender money from that midnight, eliminating nearly 86% of the currency in circulation, creating a huge cash crunch in the economy.

The announcement was unexpected and population of 1.34 billion was given time till 30th December, 2016 to deposit old currency and simultaneously get the new currency in cash up to INR 4000. These limits of depositing and withdrawal were regularly revised as per the requirement by the monetary authority.

The majority of the people thought public in India will revolt on this and there would be agitations. But there was no such upheaval and people accepted the move willingly as the intention behind this move was to get the black money out in the circulation, lowering on the real estate prices and it would be India’s biggest move against shadow currency. It is too early to comment on the success or failure of the intentions, but we can still observe the impact of it on the various industries in India. Following are the industrial statistical facts related to demonetization:

Automobile sales in India fell 18.66% in December 2016, the steepest in 16 years post demonetization. “Automakers sold 12,21,929 vehicles – passenger and commercial vehicles as well as two and three-wheeler – in the December month in India,” according to data from industry body Society of Indian Automobile Manufacturers(SIAM). The drop was the steepest since December 2000, when it was 21.81%, said Vishnu Mathur, Director-General of SIAM.

According to data made available by Knight Frank India, the year 2008 saw sales volumes going down by 27%, indicating negative growth. The year 2016 has also projected negative growth of -9%. In the fourth quarter, after demonetization, sales volumes have dropped by 44% and new launches have fallen by a massive 61% year-on-year during the same period. Had it not been for demonetization, property markets would have actually fared much better.

Counterpoint Research data showed that 25% of the 118 million smart phones shipped in India this year were 3G and 2G devices. About four to five million of this shipment is expected to still be unsold. At an average sale price of US$ 50, this inventory could be worth INR 1,700 crore, the research house said.
Industry insiders and market watchers said that local players such as Micromax, Intex, Lava and Karbonn would find it tough to liquidate 3G-phones at a discount, as 4G phones are already available at affordable prices, unless manufacturers take to deep discounting and absorb the losses.

Source: National Horticulture Board; Negative values indicate rise in prices

The price of peas dropped between 15% and 20%. The crash in prices was also due to oversupply, the data shows. While the prices of tomatoes (hybrid variety) fell by 55%-85%, the supply was double and even triple the previous year in parts of India, such as Ahmedabad, Kolkata and Hyderabad, according to data from the National Horticulture Board.

Mobile wallets companies have turned out to be the single largest beneficiary of demonetization. Shopkeepers, vegetable sellers, petrol pumps and even sex workers lapped it up. One of the company – Paytm’s traffic increased by 435%, app downloads grew 200%, and there was 250% rise in overall transactions and transaction value. The value of mobile wallet transactions did not increase. In November, 2016 according to SBI Research, transaction value was down to INR 35,240 crore, lowest since February 2017 as more people bought low-ticket items. Until December 2013, INR 18,130 crore worth of card transactions had taken place.

The above statistical figures are considering the impact on the industries up till three-four months of demonetization. Hoping things turn in favour in future!!!!
* Source of the statistical figures Economic Times

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