India’s demonetisation move is affecting consumer sectors ranging from cars to clothes amid a cash crunch.
“As the Indian retail industry generates a lot of cash transactions, a reduction in sales will continue in the short term, namely one to two quarters,” said Pankaj Renjhen, the managing director of retail services at JLL India.
“This impact is being felt largely by small traders and the unorganised retailing segment prevalent on many high streets across the country, as compared to the organised retailing and malls.”
Meanwhile, car dealerships have had a sharp drop in footfall this month after the 500 rupee and 1,000 rupee notes were scrapped. A decline in sales of cars and motorbikes is expected this month.
"Bookings have come down by nearly 40 per cent," Jnaneswar Sen, the senior vice president of sales and marketing at Honda Cars India, told The Times of India.
India is very much a cash-based economy. Therefore, with the flow of black money largely cut off, alongside strict restrictions on withdrawals and the sum that can be exchanged, the amount of cash in Indians’ hands is very limited.
Mr Renjhen said that the jewellery and luxury sectors were affected more than other segments because of their history of receiving black money. The negative effect on these sectors “is likely to continue for a while. These two segments will take much longer to revive.”
But the longer-term outlook for consumer demand is good and more shoppers were already starting to pay by card, analysts said.
“Lower footfalls in shopping malls is a passing phase and is expected to normalise in a few weeks as more of the newer currency denominations come into circulation, enhancing the purchasing power of consumers once again,” said Mr Renjhen.
“The long-term growth scenario of Indian retail continues to be resilient and growth-oriented. The domestic consumption story remains intact thanks to a strong economic base, favourable demographics and FDI-friendly policies.”
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