70% businesses in Mumbai, Pune say note ban hit them hard

The demonetisation drive has impacted nearly 70 per cent of businessmen in the country's financial capital of Mumbai and the manufacturing hub of Pune along with nearby areas, says a report.
Sectors such as construction and the informal roadside vendors are the worst hit by note-ban, an SBI research said in a report today.
The findings are based on a survey conducted in Mumbai and Pune among different formal and informal business groups to ascertain the effects of demonetisation on their daily business and whether the move has resulted in increase in digital mode of payments.
The survey was conducted between December 30 and January 3.

"The survey reveals that as much as 69 per cent of the respondents have been impacted. But, even then there is an overwhelming support for the move with 63 per cent of the sample supporting it," the report said.
A total of 175 responses were recorded and analysed of which 40 per cent respondents were from premier business locations of Mumbai and the remaining 60 per cent were from Pune and nearby areas.

The respondents said the lack of supply of lower denomination notes resulted in more chaos.
The prevalence of digital mode of payments in chemist shops and even in automobile stores has possibly resulted in only marginal impact on their sales, says the survey.

It said the construction sector and the informal roadside vendors seem to be the most hit, with 55 per cent and 71 per cent respondents saying their business came down by over 50 per cent.
Within the textile sector, shopkeepers dealing with retail segment have been more impacted than those in the wholesale segment. Moreover, the wedding season has been disappointing with sales dipping significantly.
Regarding shift towards digital payments, around 41
per cent sellers already had PoS machines available even before demonetisation, but their usage has seen an increase only after note ban.
Nearly 15 per cent moved to electronic payments, such as m-wallets, PoS in the ensuing weeks. It means that Rs 25,000 crore of cash-based transactions have moved to digital in the last 2 months.

"This number could have been even higher because the behavioural shift has not happened yet and many merchants still prefer cash transactions when the amount is not large," the report said.
This is mostly discouraging people to use PoS for small transaction value of say less than Rs 200 or so. Also, many merchants are facing connectivity issue at PoS machines.
"But all in all, this is a good beginning. There is still some resistance about moving towards cashless payment systems but majority are contemplating shifting as soon as possible," the SBI report said.
The government should thus build incentives for banks investing in creation of card acceptance infrastructure by deploying PoS terminals/creating acceptance points, it said.

"We would suggest the government to very quickly take on board new merchants, particularly small and marginal traders, grocery shops, etc on digital platform by a more targeted approach. This could be incentivised and the same can be met by support funds from government," it said.
An even better approach could be to charge the large merchants, which could be used to cross subsidise the small merchants, and this could be a sustainable model, otherwise new merchants need to be convinced about the uncertainty beyond March 2017, the report added.