A Study on Impact of Demonetization on Retailers in Mumbai presented January 2017

1. A Study on Impact of
Demonetization on Retailers in
Mumbai
Ketan Vira, Associate Professor,
GNVS Institute of Management,
Mumbai

2. Introduction
On November 8, 2016 the Prime Minister gave a
call for Demonetization of high value Indian
currency. As he exhorted the masses to participate
in the ‘Mahayajna’ to weed out black money and
join the “festival of honesty and celebration of
integrity,” the Indian economy looked at the
dawn of a new and cleaner era. For the time
being, the demonetization may be a bitter pill but
it is a pill that is likely to cure many ills plaguing
our economy.

3. Impact on the Economy
• Some economists estimate, demonetization could lead
to disclosure of 1-2% of GDP.
• But some economists point out to some short-term
risks, particularly including a dip in the December
quarter GDP growth and corporate performance. In the
first policy review post demonetization, the reserve
Bank of India has already lowered the GDP growth
forecast to 7.1% from 7.6%. Moreover, if money
supply declines temporarily because of the
demonetization, then assuming no immediate change in
velocity of circulation, we would either see some
deflationary tendencies or lowering of real demand
(economic activity).

4. Retailing in India
The Indian retail sector accounts for over 20%
of the country’s gross domestic product (GDP)
and contributes 8% to total employment. The
cumulative foreign direct investment (FDI)
inflows in single-brand retail trading, during
April 2000 to June 2011, stood at 69.26
million USD

5. Retailing in India
The current estimated value of the Indian
retail sector is about 500 billion USD and is
pegged to reach 1.3 trillion USD by 2020. The
penetration level of modern retail (currently
5%) will increase six-fold from the current 27
billion USD to 220 billion USD in 2020

6. Retailing in India
The Indian retail sector is expected to grow at
a CAGR of 15 to 20%. Factors driving the
organized retail sector include the following:
• Higher incomes driving the purchase of
essential and nonessential products
• Evolving consumption patterns of Indian
customers
• New technology and lifestyle trends
creating replacement demand

7. Retailing in Mumbai
Mumbai remains the financial capital of the
country and is the hub for banking, financial
services and insurance (BFSI) companies in India.
The sheer size of the region in terms of population
and its socio-economic profile make it one of the
most important retail markets in the country.
Nearly 57% of the city population comprises
household earning above Rs.300000/- per annum.
Mumbai is often projected as one of the most
expensive cities in India. The MMR region has
the highest consumption expenditure in the
country, and stands at Rs. 4,113 bn.

8. Retailing in Mumbai
Between 2015 and 2019, the modern retail
market size in the MMR is expected to grow at
a CAGR of 23% from Rs.164 bn in 2015 to
more than Rs. 381 bn in 2019.

9. Literature Review
ICAI (2017), has described the long term benefits of
demonetization on the Indian economy as it will benefit it
several areas such as increase in the GDP and credit
creation.
The retail sector in Mumbai which is given Think India,
Think Retail Report (2016) the report also states the
potential of retail in Mumbai Metropolitan Region and the
level of Non-modern retail.
The FICCI-PWC Report (2012) also states that India stand
high on Index on Consumer Confidence which makes this
sector important and being the sector which is based on
the liquidity has been the most impacted sector too

10. Objectives of the Study
• To study the extent of change in the business
due to demonetization
• To study the extent to which the retailers face
problem in arranging the cash-change and
increase in the non-cash modes of payment
• To study the impact of demonetization on use
of credit/debit cards due to server issues
• To study the impact of demonetization on
working capital and inventory management

11. Operational Definition
Demonetization: When a currency note of a
particular denomination ceases to be a legal
tender it is termed as demonetization. While
as per dictionary demonetization means
“ending something (e.g. gold or silver) that is
no longer the legal tender of a country”, one
needs to see if there is anything more to the
word.

12. Operational Definition
Retailer: A retailer is a business that sells products
and/or services to consumers for their personal or
family use. Retailers are final business in a distribution
channel that links manufacturers to consumer. A
distribution channel is a set of firms that facilitate the
movement of products from the point of production to
the point of sale to the ultimate consumer.
The definition is considered for the study with only
limitation that only brick and mortar and organized
retailers are considered. On-line retailers and
unorganized retailers are outside the scope of the study.

13. Research Methodology
• Coverage of the Study: The study is confined to the Mumbai
Jurisdiction and only Brick and Mortar model of retailing
• Sources of Data: The study is based on primary data by
administering structured questionnaire. Data is collected from the
organized retailers and are divided into three categories viz.
General Merchandise (Garments, Accessories, Cosmetics,
Footwear, Music, Electronics and Opticians), Food Retailers (Kirana
Stores) and Drug Stores (Chemists) the reason for this
categorization is that General Merchandise price elasticity’s are
more as compared to Food Stores. The reason for considering the
Drug Stores separately is as they were exempted to accept old
currency notes.
• Sampling: The Sampling for the study is done randomly covering
entire zones of Mumbai viz. South, North, West, Central and
Harbour.

14. Data Analysis
Table 1: Percentage Fall in Sales based on the previous year’s data:
Change
Category
No
Change
Less than
10%
10% to
20%
20% to
30%
30% to
40%
40% to
50%
More
than
50%
Total
General
Merchandise
12 50 23 38 11 03 03 140
Food Stores
(Kirana)
08 53 05 03 02 Nil Nil 71
Drug Store 19 05 Nil 02 01 Nil Nil 27
Total 39 108 28 43 14 03 03 238

15. Data Analysis
Table2: Increase in Non-cash mode of Payments
Response
Category
Strongly
Agree
Agree Neutral Disagree Strongly
Disagree
Total
General
Merchandise
63 53 03 18 03 140
Food Stores
(Kirana)
23 21 13 09 05 71
Drug Store 05 08 09 03 02 27
Total 91 82 25 30 10 238

16. Data Analysis
Table 3: Problems faced in arranging cash-change
Response
Category
Strongly
Agree
Agree Neutral Disagree Strongly
Disagree
Total
General
Merchandise
43 33 18 36 10 140
Food Stores
(Kirana)
34 21 05 08 03 71
Drug Store 16 04 03 03 01 27
Total 93 58 26 47 14 238

17. Data Analysis
Table 4: Use of Credit/Debit Card affected due to Server
Problem/Issues
Response
Category
Strongly
Agree
Agree Neutral Disagree Strongly
Disagree
Total
General
Merchandise
51 48 03 20 18 140
Food Stores
(Kirana)
20 21 06 09 15 71
Drug Store 02 04 09 04 08 27
Total 73 73 18 33 41 238

18. Data Analysis
Table5: Impact on Inventory Management
Response
Category
Strongly
Agree
Agree Neutral Disagree Strongly
Disagree
Total
General
Merchandise
40 18 32 21 29 140
Food Stores
(Kirana)
11 19 18 18 05 71
Drug Store 11 08 02 03 03 27
Total 62 45 52 42 37 238

19. Data Analysis
Table 6: Impact on Working Management
Response
Category
Strongly
Agree
Agree Neutral Disagree Strongly
Disagree
Total
General
Merchandise
39 22 22 26 31 140
Food Stores
(Kirana)
09 11 10 18 23 71
Drug Store 02 03 01 03 18 27
Total 50 36 33 47 72 238

20. Data Analysis
Of the total retailers of all three categories 45% of the
retailer experienced less than 10% fall in business
during the month of Nov and Dec’2016. Of which
maximum impact was on Food Retailers i.e. around
75% whereas Drug Store i.e. 18.5% of the Chemists
was minimum.70% of the respondents of Drug Stores
did not experience any change in the business. Of the
total respondents only 1.25% experienced the fall in
sale of more than 50% of which all being General
Merchandise retailers. Around 16% respondents did not
experience any change in the business due to
demonetization. Drug stores being least affected of
demonetization

21. Data Analysis
Around 73% of the respondents Strongly
Agreed and Agreed that there was huge rise in
the use of non-cash modes of payments.
General Merchandise retailers experienced
maximum use of non-cash modes as compared
to other categories. Drug Store also did
experience increase in the use of other modes.

22. Data Analysis
• In spite of increase in the non-cash modes of
payments more than 63% of the respondents
across all the three categories faced problems in
arranging cash change which was one of the
major hurdle faced by the retailers during the
month of Nov & Dec’2016.
• Another problem analyzed in the study is problem
face by retailers due to server issues in accepting
credit/debit card. More than 61% respondents
experienced it.

23. Data Analysis
An issue related to Inventory Management was
felt to a greater extend by General
Merchandise retailer and Food retailer.
A problem related to working capital was
maximum faced by General Merchandise
retailers.

24. Findings
Drug stores did not face much problem as they
were permitted to accept old currency notes.
But they also experienced the increase in the
non-cash modes of payment which is evident
that many Drug Stores experienced the hike in
the sales during the period. However they
faced the problems in Inventory Management
this may be due to increase in sales
unexpectedly.

25. Findings
The study also has observed that Food
Retailers experienced fall in sales more than
the other categories up to 10% this is due to
the products which has high price elasticity
being stocked by these stores. General
Merchandise faced maximum problem as few
stores also experienced heavy fall in business
which affected their working capital as well as
their inventory management.

26. Findings
From the comments of the respondents it was
also found that many retailers who were not
using other non-cash modes of payments
started using it and learned the new
technology. However, it was also observed
from the few responses that the charges on
credit cards increased the expenditure of
retailers as there is a charge levied of around
1-1.5% on transactions through credit cards.

27. Findings
One of the major observation in the study is
that retailers faced problems in handling
customers with credit/debit cards as the
transactions were not getting processed
smoothly due to the limited capacity of the
servers.

28. Conclusions
The responses were subject to political influences
of the respondents as there were retailers who did
not face any major problem during
demonetization but commented that the entire
move of demonetization was wrong. However,
looking at the other aspect such as cash-less
economy will definitely contribute to the growth
of retail as was observed in the Drug Stores,
subject to effective implementation of technology.
Specific to Mumbai, looking at the potential cash-
less economy will act as catalysts for paradigm
shift in retailing.

29. THANK YOU