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India: the impact of demonetisation


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According to a recent forecast by IGD, Asia is the fastest growing grocery market across the world. In fact, the forecast anticipates that the Asian grocery market is likely to experience sales which exceed those of North America and Europe combined over the next 5 years. With a 6.3% annual compound growth rate (CAGR), the market is forecast to reach $1073bn by 2021. Of that total, India is anticipated to account for $735bn, with a 9.7% CAGR. However, as with all forecasts, any international political or economic instability is likely to render these estimations unreliable.

A Growing Market

Whilst UK grocers consider a future outside of the EU, India may be wise to look closer to home to find challenges to their current grocery market growth. The recent (rather swift) decision to remove Rs 1000 and Rs 500 from circulation has caused a myriad of troubles throughout the FMCG and retail sectors, not to mention society as a whole. A whopping 92% of retailers are ‘unorganised’. Locally known as ‘kiranas’ or ‘mom-and-pop’ stores, traditional grocery retailers are the preferred choice for the majority of shoppers. Often, these retailers trade in cash only, which has undoubtedly had a snowball effect upon trade. Every tier of the FMCG sector has felt the strain:

  • Suppliers have been forced to reduce production by up to 25% due to a growing stockpile of goods as wholesalers struggle to present cash to purchase goods
  • Wholesalers have struggled to sell on acquired stock to cash-poor retailers
  • Retailers impacted by increasing number of customers requesting credit in order to buy goods because…
  • Many employees across India are paid in cash, which is increasingly difficult to obtain

According to statistics published by the Reserve Bank of India, there are over 1,440 million deposit bank accounts open in India.

Demonetisation Drive

Cash accounts for 90% of all monetary transactions, leading to a great deal of frustration and anger following the overnight cancellation of Rs 1000 and Rs 500 notes, branding 86% of all cash in circulation as non-legal tender. Following this rapid implementation, India’s Finance Minister has now announced plans to install two point of sale machines (allowing electronic payment) in 100,000 villages in a so-called ‘demonetisation drive’. Given that the rural, agricultural poor have been hardest hit by withdrawal of notes, strain will be placed on the already sparsely spread banking services. Given that approximately 90% of the workforce is part of the unorganised sector, and cash is often the only method of remuneration, the government are keen to regain lost monies in form of taxes, though many have criticised the recent action.


According to statistics published by the Reserve Bank of India, there are over 1,440 million deposit bank accounts open in India. The government launched the financial inclusion initiative, ‘People’s Wealth Scheme’ in 2014 with the aim of providing 75 million unbanked Indians with access to financial services. The latest progress report released by the India Ministry of Finance suggests that over 257 million bank accounts have been opened since the start of the scheme. Independent research by FII (Financial Inclusion Insights) suggests that only 42% of bank accounts are active (used within 90 days), which places a cloud over the proclaimed success of the scheme.

Whilst the government is celebrating the success of the scheme, there is widespread concern around the volume of zero balance accounts and likely account duplication. With a rural population of 881 million which accounts for 67% of the population it is hardly surprising that bank account holders are most likely to hail from rural households. However, their access to banking services may be much less simple than their urban counterparts.

India has it all to play for as the third largest grocery market, currently placed between USA and Brazil.

A Cashless Society

As introduced earlier, many small traders are complaining of exceptionally poor sales due to a large proportion of individuals not having the cash to pay for daily necessities. While a cashless society is highly desirable target for the government, it is not entirely practicable given the current infrastructure. Also lacking in some areas of India is an adequate level of financial literacy as well as cyber security in order to raise confidence in banking and online financial activities. As many as 29% of Indians (according to FII) are financially illiterate, which suggests a cause for concern moving into a cashless society. Also astounding is that 21.9% (Census, 2011) of the population was deemed to be below the national poverty line, indicating a lack of wealth despite implementation of improved social security benefits and uplifted wages.

In a recent government circular, it was suggested that Goa would be the first state to go ‘cashless’, demanding each and every vendor to offer digital payment options for customer transactions. However, many argue that the wide-scale mistrust in digital technology, lack of resources, ability and stable infrastructure will create large pitfalls within the proposed plans. Prime Minister Modi is calling for young people to support the proposal by teaching families how to use digital payment and banking technologies. State-wide initiatives are being launched to teach the public how to use digital cards and banking technology. As the state of Goa has a population of 1.8 million, this will be no mean feat to achieve prior to elections to be held in early 2017 (which is the proposed plan of the government).

An Unstoppable Force?

India has it all to play for as the third largest grocery market, currently placed between USA and Brazil. The grocery market is known for its adaptability. Innovation may be called upon by some to minimise the impact of the coming changes to retail businesses, large and small. Though perhaps the traditional grocers, offering an unrivalled service to their familiar customers are worst placed given their buying and selling options are further stifled. Until new notes enter circulation, many traditional grocers are turning to increasing customer credit in order to make a sale, though recovering these debts is proving to be difficult.

Who Are The Winners?

Arguably, modern retailers already equipped with the necessary POS systems are well positioned to continue to trade during an otherwise inhibiting period. Forecast to grow approximately 20% in the next year, the modern retailer may be wise to capitalise on the opportunity to gain an advantage over their traditional counterparts. Well-equipped modern retailers are likely to escape the punitive action promised by the government for non-compliance; however, with only 2% grocery market share at present, modern retail has a steep mountain to climb.

What we know for sure at SWL… is that beyond the current upheaval, as wages are increasing in India, productivity becomes vital. We recognise that every retailer is unique, influenced by a variety of factors, both internal and external. SWL’s AS IS, TO BE approach enables our productivity experts to collaborate with the retailer to establish a bespoke productivity solution, capable of delivering the specified business benefit.
From a retail environment common in India with no formal process and a rising wage challenge to a UK based retailer attempting to combat the increase in National Living Wage SWL’s offer will be fit for purpose and deliver benefit.
SWL offer a range of bespoke productivity solutions, including the SWL Productivity Health Check to understand your current productivity health and identify opportunities for improvement in order to support you in line with your strategy to become the best you can be.

Get in touch with us to find out more.

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