Demonetisation: Five Sectors That Suffered The Most Due To Note Ban
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It's the one year anniversary of the country witnessing the infamous demonetisation drive by the Narendra Modi-led BJP government, that overnight banned India’s highest legal cash tenders, Rs 500 and Rs 1000. While the common man was in distress for the immediate time period post the announcement, the larger impact was seen on businesses, specifically cash-dependent sectors.
The biggest slowdown was probably seen in the real estate sector due to the note ban. Although the sector saw better sales in April, May and June, because of the various schemes unveiled by the builders to reduce their stock, before the implementation of the Goods and Services Tax (GST), the overall response to sales in the sector has remained lukewarm.
The registration of properties also saw a decline. In the process, developers are estimated to have incurred a revenue loss of Rs 22,600 crore because of the cash ban while state governments suffered a notional loss of stamp duty of Rs 1,200 crore, as per property consultant Knight Frank India. Further data suggested that housing sales fell by 44% during October-December 2016 at nearly 41,000 units compared with the year-ago period while new launches dropped by 61%.
The government attributed the slowdown to rooting out and elimination of Benami and cash transaction in the sector, but developers and real estate companies bore the brunt.
The organized hospitality sector may have benefit from the demonetisation drive, due to ease of alternate modes of payment, but the larger base of businesses dependent on cash transactions suffered heavily.
The unavailability of cash in the immediate months following demonetization made tourists restrict their travels and extra frill spends due to lack of available currency. The inventory of hotels in the industry was also heavily impacted, especially for restaurants which deal with perishable commodities.
Although the online segment boomed during demonetisation, with merchants offering options to pay later, offline traders suffered the most. Unorganized sopping districts throughout the country saw close to 50% dip in their businesses, due to customers not having the cash to shell out for transactions. Many retailers were forced to slash their margins in order to keep the sales momentum.
While most offline retailers eventually adopted Paytm and other POS methods for accepting payments, the overall rush in the reatils sector took a hard hit.
Gold and Precious Jewellery
In the last decade the government has tried and tested every possible trick to discourage people from buying physical gold, but demonetisation by far may have been the most effective drive. Naturally, the drive was discouraging for gold and precious jewelry traders, whose bulk transactions are done in cash.
From the government’s perspective, however, the good news is that out of the Rs 15.44 lakh crore in currency that was rendered invalid on 8 November 2016, Rs 15.28 lakh crore was pumped back into the Indian banking system, indicating that 98.96% of notes that were banned returned to the banks successfully.
The consumer durables market still operates 80% on cash, thereby affecting large volumes of sales. Although the option to go cashless and pay digitally was available, most consumers stayed away, especially from investing on uneccesary products.
On the flip side, sectors that remained non-affected were Pharma, Education, Agriculture, Hospitals, Energy and Telecommunication. Additionally from the government’s perspective, the good news is that out of the Rs 15.44 lakh crore in currency that was rendered invalid on 8 November 2016, Rs 15.28 lakh crore was pumped back into the Indian banking system, indicating that 98.96% of notes that were banned returned to the banks successfully.