Demonetisation: Business blues but compliance improves

A year since the government banned Rs 500 and Rs 1,000 notes,  Business Standard reporters spoke to people from different walks of life to gauge the mood and the impact of this move. Edited excerpts: 

Cash business is down from 90% to 60%, wallet use only 15%

Shaival Chandra, founder, Gritty Foods

Shaival Chandra, Founder, Gritty Foods

Demonetisation may have been an excellent move for the country, but not so much for business. For a month-and-a-half, business took a severe hit. Typically, a customer spends around Rs 200 at our outlet. But because of the note ban, no one wanted to go to a restaurant and spend cash as everyone wanted to conserve it. Several times, when cards were being swiped, bank servers didn’t work. We, therefore, had to avail machines from different banks to keep as a backup. Other than falafel outlets, we also have a catering business. All clients cancelled events citing note ban as the reason. 

Even the Rs 2,000 notes were a huge problem because there was no change. Our staff got us spare cash from their own homes and we did online transfers to their accounts. The effect of demonetisation has not worn off even now. Earlier, we would do 90 per cent of the business in cash. Now it has reduced to 60 per cent. People still like to preserve cash. Wallets were a huge hit at that time due to convenience. We registered with two mobile wallets immediately. But now not many transact through these. Mobile wallet transactions are just 15 per cent of what they were during demonetisation. People prefer cards to wallets now. 

Card use has increased in my home

Seema Bhagat, housewife

Seema Bhagat

At the time of demonetisation, I had Rs 40,000 squirrelled away in Rs  1,000 notes. The immediate challenge was to deposit it. After waiting for a week for the crowds to diminish, I went to my bank, stood in the queue for two-and-a-half hours to deposit the money. I also started using a mobile wallet. The problem was that different stores accepted different wallets. I also overcame my somewhat irrational fear of using a credit card and began using it. Eliminating cash altogether from transactions, however, proved impossible as maid servants, vegetable vendors, etc demanded cash.

Initially, when I visited the ATMs, I found them empty. Only later in the game did I wise up to a trick others were using. I asked my magazine seller to tip me off as soon as the ATM was loaded. After a fortnight, it took about one hour to withdraw cash from my bank branch. 

Our dependence on cash has gone down. Earlier, if we visited an ATM thrice a month, now we do so once. I have begun to use a credit card for all high-value purchases. But I stopped using the mobile wallet after I had problems with internet connection a few times. 

Buyers willing to pay in white, sellers willing to pay tax

Pradeep Mishra 

Head, Sainik Estates, Gurgaon

Pradeep Mishra

The real estate market, which was already down for two years, faced more trouble when demonetisation was announced. All transactions that were in the pipeline got stuck. Sellers wanted new currencies, which were not available, while buyers wanted to get rid of their old currencies. Many buyers also began to demand to be paid in white. About 10-15 per cent of the transactions that were in the pipeline didn't fructify at all. For the next two-three months transactions came almost to a standstill.

This move, coupled with the Benami Transactions (Prohibition) Amendment Act, created a lot of fear amid potential buyers. Many decided to defer their purchases. Even those who were engaged in legitimate transactions became wary because they did not want to any hassle from authorities. The good thing is that both buyers are sellers are more willing to transact using white money now. Sellers are willing to pay tax on the premium amount. Most are afraid of cash transactions.

My tech company has become payments solution provider 

Bipin Preet Singh 

Founder, MobiKwik

Bipin Preet Singh

Our entire business changed after demonetisation. We had to make changes overnight. From being a technology company focussing mainly on recharge and bill payment, we went on to become a payments solution provider working on the ground with merchants. The focus shifted to operations.

Due to lack of currency in circulation, individuals were adopting e-wallets fast. We had never seen that kind of user base growth and transaction volumes. As business increased, we had to implement technology that could keep pace with the growth. There were new regulations every day. There were, therefore, times when we planned a feature on one day but had to scrap it the next day. Demonetisation forced individuals to look at options like e-wallets, which helped us grow. As a result, our user base grew 10 times. Last year before demonetisation, we had 200,000 merchants. Now we have 2.5 million.

People unwilling to spend still, digital too expensive for small businesses

Dinesh H Gosalia 

Grocer 

Dinesh H Gosalia

 

For us, business fell 50-60 per cent in the first two months (November and December). Things have improved but business is still slow as people are unwilling to spend money. Despite all efforts from government to digitise the economy, small-and-medium-size businesses are still continuing with cash or cheques. Going digital will be extra expensive for us. Currently, it not possible to expand and spend money on hiring new employees or equipment. Many of our distributors are still not taking money through digital payments and insisting on paying either by cash or cheques.

I don’t think government has achieved much on the black money front. In fact after demonetisation, we had to stand in long queues outside banks and ATMs, which was very difficult.