Light trials are left by moving traffic as they pass an advertisement for a cash-for-gold store at night in New Delhi (Photographer: Anindito Mukherjee/Bloomberg)

Delhi, Kolkata Among Urban Cities Worst Hit By Demonetisation

The national capital of New Delhi and and the capital of West Bengal, Kolkata, may be among the worst hit urban cities by the demonetisation.

According to a ground survey conducted by Edelweiss Pulse, these cities may have seen the steepest fall in demand. The western region, too, has been badly impacted while the southern region had dealt better with the situation.

Prime Minister Narendra Modi banned the use of Rs 1,000 and Rs 500 notes on November 8, in a bid to fight black money. The decision left the economy grappling with a cash crunch and has impacted transitions across sectors like retail, real estate and automobiles. Just like different sectors, different regions too are feeling the heat of demonetisation in varying degrees.

Delhi, Kolkata Among Urban Cities Worst Hit By Demonetisation

Delhi ‘Cash Trapped’

The nation's capital has been deeply impacted by demonetisation because of its dependency on cash, said the Edelweiss Pulse report. With salaried class in "conservation mode", discretionary spending has fallen and may remain subdued till March 2017. The business class “scared by fear psychosis” is also treading cautiously, it added. While people are shifting moving towards digital transactions, the transformation is slow.

The result is a contraction in demand.

According to channel checks conducted by Edelweiss, demand in the consumer durables segment in Delhi is down by 40-50 percent compared to last year. The region sees extensive use of cash for purchases of consumer durables, which means that the hit to demand may be steeper. The jewellery sector has also taken a hard knock. Jewellery sales have seen a decline of 40-50 percent as around 70 percent of the customers made payments through cash, said the report.

Delhi's cement sector has registered a 35 percent drop in retail sales after demonetisation, mainly due to a sharp blow to the real estate sector. Demand revival depends heavily on infrastructure spending by the government which, which will kick in from March 2017, said the report.

The fast moving consumer goods segment remains optimistic as demand picked up in the last week on November after an initial drag. The dealers expect sales to recover in the near future.

Kolkata ‘Kool’ But Badly Hit

Contrary to the opposition from West Bengal chief minister Mamata Banerjee, Edelweiss Pulse found that the residents of Kolkata were “surprisingly kool.”

The impact on the city’s economy, however, has been severe.

Demand for jewellery has fallen 40 percent while the ready-made garment sector has seen a 90 percent fall in sales, said the report. Other businesses saw a demand hit of 20-30 percent, it added.

The cement sector in Kolkata has seen demand shaved off by a quarter in the month of November while consumer durable sales have already declined by 40 percent. Year-end discounts may help the latter rebound in December.

Pune: Win Some, Lose Some

Pune city has been dealing with long queues at the ATMs and lack of cash at the banks. The impact of this has been felt in varying degrees depending on the consumer profile.

The impact on gold finance, which is highly cash dependent, has been meaningful. In contrast, there has little impact on mid‐segment cars, where transactions are typically routed via banking channels. Larger transactions at mandis have reduced due to the high cash dependency, said the report.

Cement sales fell 20-25 percent with demand recovery heavily dependent on the real estate sector. The real estate sector was already under pressure before demonetisation and its recovery remains uncertain after demonetisation, said the report.

Across the gold finance business, walk-in have fallen by almost 50 percent but collections have improved as customers chose to may repayments in old currency notes. The report added that since all disbursements are being routed through banks, the ability of consumers to use money borrowed against gold for general business purposes.

Chennai/Coimbatore: Ready To Adapt

Large cities in the south have shown much more resilience with the economy recovering starting the last week of November. In a region which already has a high proportion of card users, surveys across Chennai and Coimbatore showed that the people are ready to embrace cashlessness.

That’s not to say that these cities have not been impacted.

A substantial dip in demand in the region has made traders wary of restocking, the report said. Most dealers across segments, from cars to two-wheeler and consumer durables, hinted at lower restocking levels over the next two to four months owing to near term impact of demonetisation and goods and service tax uncertainty. Dealers are banking on special schemes to boost demand in December.

Chennai's auto sector has seen a 50 percent to 70 percent fall in demand over the last three weeks and is unsure "how long the pain will last", the report said.

Cement demand has fallen 20-30 percent while consumer durable’s demand tumbled 65 percent.

In Coimbatore, apart from a near 50 percent hit to auto sales, demand across the electrical retail segment has fallen by upto 60 percent. Gold finance has seen a near 30-50 percent to business activity. Traders are optimistic that demand will gradually recover over December to January.

The Medium-Term View

In a separate report, UBS noted that a comprehensive view on demonetisation suggests that the near term disruption will turn into a credit cycle in the medium term, followed by the integration of the informal economy into the formal one in the long term.

However, what remains uncertain is whether the inconvenience will continue up to six months and what the Reserve Bank of India and the government's future policies will be.

The impact from the GST implementation and other reforms will also shape the future of the market's recovery, the report added.