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Business, Government and Society

Impact of Digital Push by Government on Retailers

Submitted to: Prof. Ajit Phadnis


S No. Name Roll No.

1. Chatla Prasanth Kumar 2016PGP100
2. Mareppa Abhinav 2016PGP206
3. Mekala Sai Saketh 2016PGP214
4. Palaparthi Suhitha Raj 2016PGP388

1. Executive Summary
2. Introduction
3. Research Objective
4. Research Methodology
5. Secondary Research
6. Analysis from Primary Research
6. Major Insights and Recommendations
7. References
8. Annexure

Government of India is putting efforts to promote digital transactions, which
leads to increase in tax compliance, saving of resources and helps in ease of
doing business. Government along with Reserve Bank India is making this
possible by not just incentivising both public and retailers. These incentives can
be in the form of reduction in Merchant Discount Rate and deferred tax

During demonization there was a huge spike in digital transactions is that

trend continuing now also? or is there decline in the digital transactions?

We also want to analyse how this digital push is effecting the profitability of
the retailers and we also want to know how well customers are accepting this

Primary Research:

1) We as a team will visit retail stores which includes stores having wide
ranges of turnover in Rau and surrounding areas to gather required data
2) We want to collect data regarding the change in profitability, change in
number of customers and customer’s acceptability to digital payments
3) Talk to customers visiting shops to know their view on digital India and
their acceptability levels
4) We also want to understand the acceptability levels across various
customer segments, the segmentation would be based on income levels,
gender, age and life styles.

After conducting survey with a sample size of 20 retailers and 20

customers we will analyse the results to see the effect of digital push on
customer purchasing pattern and retailer’s profitability.

We spoke with retailers and customers in rau to know the impact of digital
India push. Talking from the perspective of the retailers they are forced to
install swipe machines or accept paytm during/after demonetisation phase.
They said if they didn’t accept digital payments they are losing out their
business. But their profitability reduced because they need to install swipe
machines and a part of the transaction amount need to pay to service
providers, this extra amount had to be borne by the retailer itself and cannot
be transferred to customers. To add pain to this there is also cap on the no of
withdrawal you can make by using ATM. Government have given them time
and flexibility in tax payments.

Talking from the perspective of the customers they are having huge benefits
with digital transactions. They can transfer exact amount and no need to keep
huge cash with them which has chance of losing. But the problem is sometimes
they need to wait at longer time to make the tractions due to connectivity
issues and there are many failed transactions happening.

We had collected data both from retailers and also from customers about
various issues they are facing with digital mode of payment and also benefits
from it.

3. Research Objective

The Objective of the project can be divided into two major parts:

1. During demonization there was a huge spike in digital transactions is

that trend continuing now also? or is there decline in the digital
2. We also want to analyse how this digital push is affecting the
profitability of the retailers and we also want to know how well
customers are accepting this change.

4. Research Methodology

For analysis both primary and secondary source of data was used. While,
data from various government websites forms the basis of secondary research,
the primary source of data was collected through self-constructed
questionnaire. A sample of 10 retailers and 10 customers were selected in the
rau market in Indore for the study by simple random sampling method. The
respondents from various retailers were grouped into three major categories

1. Super markets
2. Multi brand outlets
3. Discount stores
4. Small kirana stores

The analysis from the retailer perspective has been done on the basis no of
customer visiting the store, turnover/month, mode of payment and issues with
digital payments. We received a total of 90 responses with 10 respondents
from retailer and remaining 90 from the customers. A sample of the survey has
been given in the appendix. Secondary research has been mostly used in
evaluating how retailer sector as a whole getting effected with various digital
initiatives by the GOI. The trend of digital transactions made by the customers
using various digital payments metjod.

Note: The study of the report was confined only to rau market of Indore and
the results of the study cannot be generalised.

5. Secondary Research

Digital transactions in September 2017 rose to the second highest monthly

level by value since the government’s demonetisation exercise in November.

Transactions through digital means rose 13.5% to Rs124.69 trillion in

September from Rs109.82 trillion in August, according to provisional data
released on Wednesday by the Reserve Bank of India (RBI).

It’s the second highest total for a month since the 8 November
demonetisation, which caused a cash crunch that forced consumers to turn to
cashless payments. The highest was in March at Rs149.59 trillion.
The number of digital transactions fell marginally to 865.8 million in September
from 883.4 million in August.

Digital transactions include those through credit and debit cards, the unified
payments interface (UPI), unstructured supplementary service data (USSD),
prepaid payment instruments (PPIs) and internet banking. Transactions across
UPI reached a new peak in September. The transaction volume was 30.8
million, up 85% from 16.6 million in the previous month. The value of
transactions rose around 28% to Rs5,293 crore in September from Rs4,127
crore in the previous month. Since December, the UPI transaction volume has
risen more than 10-fold, according to the RBI data.

UPI is a payments system launched by National Payments Corp. of India (NPCI)

that facilitates instant fund transfer between two bank accounts on a mobile
platform, without requiring any details of the beneficiary’s bank account.

UPI has started to overtake net banking as it is much a flexible money transfer
platform than the latter. Most of the payment gateways have also introduced
the option to pay via UPI along with other modes of payments and given the
ease it offers while making payments, most people opt for it.

Transactions through UPI received a major stimulus from the government after
Prime Minister Narendra Modi launched the Bhim (Bharat Interface for
Money) app on 30 December. UPI was launched in August 2016 with 21 banks,
and is currently being offered by about 55 banks. An upgraded version of UPI is
expected to be launched soon. Also, usage of PPIs such as mobile wallets hit a
new record in terms of the value of transactions. Transactions worth Rs2,759
crore were recorded in September against Rs2,722 crore in the previous
month. However, the volume of PPI transactions fell marginally by 2.5% to 87.5
million in September from 89.7 million in August. The provisional data
considers transactions of PPI issued by eight non-bank issuers for goods and
services transactions only.

Debit and credit card usage at point-of-sale (PoS) machines declined both in
terms of value and volume. The volume of transactions fell by around 5.7% in
September to 229.2 million transactions from 243 million transactions in the
previous month. The value of transactions fell marginally to Rs45,193 crore in
September from Rs45,708 crore in the previous month. Card transactions of
four banks have been considered by RBI. Payments using National Electronic
Funds Transfer (NEFT) and Real Time Gross Settlement (RTGS) increased by
around 4% and 2%, respectively, in September from the preceding month.
We can say that the new normal which has been achieved in context of digital
payments is much different from that of last year’s but the government has set
an aggressive target of attaining 25 billion digital transactions by this fiscal end.
There is a need for fundamental structural reform to ensure that every sector
adopts digital payments. There’s no doubt that directives have been issued by
the government but its implementation is still very low.

Earlier this year, the government announced the “DigiDhan Mission” to

achieve a 25 billion digital transactions target, outlined in the Union budget for
this fiscal year.

The programme aims to establish a robust digital payments ecosystem in a

potentially transformative attempt to drain the swamp of illicit
monetary transactions.

The need to go Digital in Unorganised Retail sector:

There are more that 14 miliion retail outlets in India, as per a report published
by KPMG. The size of the retail sector is estimated at INR 31 trillion in 2013-14.
In India, 92% of all the retail activity is done through unorganized retail. In
cities, retail sector would mostly have retail outlets, in unorganized retail, it is
mostly in the form of push cart vendors, melas, haats, mandis and kirana

In Kirana stores, most of the transactions are cash based. These transactions
are mostly of a small ticket size. Hence, both the Kirana owners ans customers
feel more comfortable making these transactions cashless. Earlier, before
mobile payment systems are introduced, cashless transactions happened using
a combination of POS machine (card reader) and a debit/credit card. These
systems are expensive for the store owners, as it requires a lot of investments.
They usually have to pay a transaction fee (around 2 %) to the card reader
issuing financial institution. Also, some store owners consider these
transactions as risky, and would be apprehensive about adapting these
systems, instead of going through conventional modes. They are afraid that
they transactions may fail or go wrong and instead of going through the
trouble that this may cause, they prefer the conventional way. Few others are
apprehensive about being tracked by the Government, so they would want to
avoid leaving a tax trial. That’s the reason why they avoid cashless modes of
transaction. Also, unorganised retail sector sees a lot of crediting happening,
hence they feel more comfortable if the transactions are made through cash
rather than doing through cashless mode.
The benefits of going cashless are as follows, despite the amount of initial
investment required on the Store owners’ part:

In case of cash mode of transactions, it is difficult for the store owner to keep a
track of depleting inventories, and he has to rely on his memory to place future
orders with his suppliers. In case of cashless transactions, there is a clear
record of everything that happens, hence, it is easier to keep a track, and
based on that simple solutions can be built based on the records. This records
will help in making managing inventory much easier for the store owners.

Other than helping in saving costs through better inventory management, it

also helps in better cash management. As they no more have to store cash that
gets accumulated over the day, separate storage and security facilities need
not be maintained.

1. Cashless transactions automatically get reported in the merchant’s bank

account. A transaction history is also recorded based on which the
merchant can obtain loans/overdraft facility easily from financial
institutions, which can be used in further advancement of his/her

2. Saving costs on inventory management, and on using cashless mode, the

kirana store owner might not able to provide credit facility; however, he
can certainly pass on some of the cost benefits that he is realizing to the
customers. This way it becomes much easier for the store owner to
retain his/her customers.

3. Over the last decade, the ecosystem of cashless payments has changed a
lot in India. The introduction of IMPS and other third party mobile
payment systems empowered the consumers with easy to use and low-
cost payment solutions. With increase in Internet penetration, all across
the country, consumer adoption of mobile wallets is increasing with a
current customer base of around 125 million (as per a study by RNCOS).
Also, the initiatives taken by the Government to increase financial
inclusion such as the bank accounts opened through Pradhan Mantri Jan
Dhan Yojana (PMJDY) and the newly licensed payments banks, it would
be easier for everyone in the system to adopt cashless modes of
transactions. The other benefit from these newly licensed payment
banks would be that each kirana stores would become a bank by itself.
Assuming that kirana store owners in rural areas are relatively well-off
and would be able to maintain some amount of cash, they could act as a
cash-out points in rural areas where ATMs are far and few. This would
be an alternative source of income for them.

4. A lot of the issues with adaptation depends on the consumer and his/her
behavior. Government and related bodies should spread awareness
about the customers but also provide incentives (such as tax breaks) for
them to adopt cashless transactions. Given, the huge chunk of
contribution of kirana store supply chain in the GDP, it would be a win-
win for all the stakeholders to move towards a more cashless economy.