You are on page 1of 10

EFFECT OF DEMONETIZATION

ON RETAIL INDUSTRY

BY :
CHUTIYA KUMARI
DEMONETIZATION?

Demonetization is the act of stripping a currency unit of its status as legal tender. It
occurs whenever there is a change of national currency: The current form or forms of
money is pulled from circulation and retired, often to be replaced with new notes or
coins. Sometimes, a country completely replaces the old currency with new currency.

BREAKING DOWN Demonetization EXAMPLES FROM HISTORY


There are multiple reasons why nations demonetize The Coinage Act of 1873 demonetized silver as
their local units of currency: the legal tender of the United States, in favour of

To combat Inflation
1 fully adopting the gold standard. Several coins,
including two-cent piece, three-cent piece, and
half dime were discontinued.
To combat Corruption and Crime(counterfeiting,
tax evasion) An example of demonetization for trade purposes
occurred when the nations of the European
To discourage a cash dependent economy
2 Union officially began to use the euro as their
everyday currencies in 2002. The old national
currencies were demonetized.
To facilitate trade
DEMONETIZATION IN INDIA

On 8th Nov 2016, the government decided to demonetize the 500 and 1000 rupee notes, the two
biggest denominations in its currency system which accounted for 86% of the circulating cash in a
country where some 78% of all customer transactions are in cash and only 60% of the ATMs were
functional
EXAMPLES FROM INDIAN HISTORY

FIRST DEMONETIZATION 12 Jan, 1946 SECOND DEMONETIZATION 16 Jan, 1978


The currency note of Then PM Morarji Desai Around 73.1 crore
Rs 1,000 and Rs 10,000 The success of was the demonetised
announced the currency
1 were removed from
circulation and 3 demon then was seen
as lower amount of 1 ban taking Rs 1000, Rs
5000 and Rs 10,000 out
3 amount. And it
didnt destroy any
exchanged with Rs100 exchange of notes money stock at all
of circulation
or lower denom notes

In 1946, the idea was Rs 1067 crores were


Out of a total issue
to demon but it became The sole aim of the added by Rs 100 alone
of Rs143.97 crores,notes
2 of the value
of Rs.134.9 crores were
4 more of a conversion.
In 2016, we are calling 2 ban was to curb black
money generation in
4 and the rest of the
smaller denoms made
it demon but it is the country up another Rs 650
exchanged
actually conversion crores
EFFECT OF DEMONETIZATION
The effect of demonetization was felt in almost every sector of Indian economy
Before demonetization After demonetization
10 But the cash crunch did not produce a
8 big dip in the 2016 Q4 GDP figures
6
4 The CSO is overstating the contribution
2 of the private sector. Before the change in
methodology to measure GDP, only a
0
Indian market fell more as compared Goldman ICRA Fitch Morgan HSBC ADB small number of companies actually filed
to its other Asian counterparts Sachs Rating Stanley their balance sheets to the firm
GDP estimates by different companies administrator, due to poor law
enforcement. 1

The second data issue is related to


measurement of the informal economy.
Although the CSO has revised its proxy
of informal sector activity there are
still concerns that the national accounts
statistics is biased towards the
registered and taxable part of the 2
The big squeeze: monetary base Vehicle sale saw a considerable dip
economy
declined from INR 22.5trn to 13.7trn but it rebounded soon
NARROWING DOWN ON

RETAIL SECTOR
DEMONETIZATION AND RETAIL
150
Oct-16 Nov-16 116.7
90.6
Consumer prices rose by an annual 100 74
1 3.41 per cent in Nov 2016, their
50
slowest pace since November 2014
1.8 2.8
0
Microwave Refrigerator Air Conditioner Washing
There has been a drop of 30% -50 -34 Machines
2 customers footfall -53
-41.2

-100
Demonetization led to the declination of sales of consumer
Spend per customer per visit drop by durables by around 40%, causing cut in production of units
3 40% Stock price of retail stores before and after demonetization

7-Nov 15-Nov 23-Nov


Gold sale increased by 70% 600 550
4 Durable goods sale decreased by 60% 500 430450
400
300
180150152 182
200 140130
Items bought per customer
5 decreased by 20%
100
0
50 40 40

Aditya birla V2 Retail Cantabil Retail Vmart


fashion & retail
DEMONETIZATION AND RETAIL
350

300

250

Retail market 200


transaction in India Oct-16
150
stands at $1tr of which Nov-16
around 8% take the 100
Dec-16
digital transaction route. 50
One of the biggest
0
beneficiary of Credit Card Debit Card Credit Card Mobile Mobile
demonetization were the -50 and Debit Wallets Banking
Card at POS
digital wallet service -100
providers. Year on year increase in total value
of transactions

Transactions LONG TERM EFFECT


using the newly
Lower inflation may lead to lower
introduced UPI have
increased from Rs 90cr
1 interest rates
in Nov 2016 to Rs
1659cr in Jan 2017
2 Asset quality of the banks will improve

Step towards cashless economy through


3 substitutes like m-wallet, debit card etc
CURRENT MARKET SCENARIO

Govt reports from 47 Its been more than 6 April saw total digital
cities have reported a months but ATMs across transactions of Rs
combined 268% year- the city still continue to 109.58 trillion, down
on-year increase in be dry with only 30 per 26.78% from Rs 149.58
tax collection cent of them having trillion in March
cash

CBDT claims to have The move helped in In Jan 2017, govt report
detected an the establishment of suggested a 60%
undisclosed income Modis vision of decrease in terror
of over Rs 93.34bn digital India but the attacks in Kashmir but
through more than %age is very small the trend reversed in a
2362 searches matter of few weeks
REFERENCES

1. http://www.freepressjournal.in/featured-blog/indias-history-with-
demonetisation-from-1946-to-2016/988212
2. https://mostlyeconomics.wordpress.com/2016/11/11/digging-
through-india-demonetization-history-12-jan-1946-saturday-and-
16-jan-1978-monday/
3. https://economics.rabobank.com/publications/2017/march/india-
where-is-the-negative-impact-of-demonetization/
4. http://www.livemint.com/Politics/Bk68qA95Y0sdktjZprgUYL/100-
days-after-demonetisation-have-digital-payments-increas.html
5. http://retail.economictimes.indiatimes.com/re-tales/demonetization-
s-impact-on-indian-retail/1949
6. https://retail.franchiseindia.com/article/multi-
channel/eretail/Demonetization-s-Impact-on-Indian-Retail.a5528/