Demonetisation hits Indian textile and apparel sector hard

Mumbai - In an unprecedented move, India, the world's largest democracy, decided almost overnight to phase out its 500- and 1000-rupee-bills to counter terrorism and the black money economy. Thus, since Thursday, November 10, 2016, the old 500 and 1000 rupee notes are only valid at a few select places and citizens are requested to turn them in for smaller bills or the new 2000 rupee notes.

Which is easier said than done as long queues are forming every day at bank branches that are even open on Sundays. Suddenly, citizens - and potential customers - are left without cash. Sure, there are many places where one can pay by debit or credit card - at shopping malls certainly - but not all customers are in their possession just as many shops, especially those part of the unorganised retail sector, are not in possession of credit card machines or even bank accounts.

The textile and apparel industry is no exception and the demonetisation scheme has left many retailers, traders and manufacturers exasperated and does feel like a “demonetisation" scheme to them indeed. “The situation is critical and I do not know how to do business in such a situation. We hope that the condition improves in the coming weeks,” said Chainroop Banthia, president of the Mumbai-based Fabric Suppliers’ Association, as quoted by Fibre2Fashion when expressing concern over the sudden dip in apparel sales.

Demonetisation leaves Indians stranded without cash

“We are into seasonal business of selling winter wears. The first fifteen days of November are crucial. The scrapping of old notes of 500 and 1,000 rupees has affected us tremendously. Last year, the sales of winter clothes were not good, we were hopeful of good sales this year. With the prevailing situation, chances are high that we will miss the sales this year as well,” feared Sudershan Jain, president of the Knitwear and Apparel Manufacturers Association of Ludhiana, when speaking to the same source.

It is not just the absence of cash but also the absence of time that keeps potential customers away as instead of shopping, people are forced to queue up at banks to get enough cash for essentials like groceries, water, gas and electricity. Suddenly, shopping for non-essential items including clothes seems like a luxury that few can afford. This is visible on the roads as even in a normally chaotic place like Mumbai, traffic snarls are for once absent and markets and malls are markedly less frequented.

In the meantime, consumers and retailers alike are setting their hopes on things geting back to normal in the coming weeks and that sales will pick up once the money circulation begins in the market. However, this could take a while.

“The demonetisation of 500 and 1000 rupees has affected the retail industry like all other industries. The government’s initiative is great for the long run, but our sales both traditional and online have taken a hit due to this. Our COD system stands affected by the sudden change in policy. However, we are hopeful that the situation will normalise in due course of time,” said Vivek Mehta, CEO, MAS Brands India and amanté.

While some like Atul Mishra, economist with the Confederation of the Indian Textile Industry, point out that urban consumers shop online and do use their credit or debit card, it should not be forgotten that the most popular mode of payment for online transactions in India is cash on demand (COD). Not all COD-customers own credit or debit cards and will thus have to curb their online spending as well.

Small traders and unorganised retail most hit

Small traders of the unorganised retail sector that may specialise in the sale of a few unbranded items like socks and underwear or shirts, shoes and pants, will also be hard hit. Their “store”, which often does not consist of more than a plastic sheet spread on the floor, is certainly not equipped with a debit or credit card machine - cash rules their business and this is certainly affected. They can only hope for a quick recovery of the situation but even in the best case, this could take months.

“The market will do brisk business once the inflow of money begins. For the time being, there is stagnancy in the market. The recovery will take months,” estimates Jitendra P Vakaharia, president of the South Gujarat Textile Processors Association.

Currently, there is a cash limit of 2000 rupees for withdrawals from ATMs and a limit of 10,000 rupees in a day - but not more than 20,000 per week - at banks. This limit has been imposed until 24th November but could easily be extended. Until then, people in India will get a first-hand experience of how little cash - and shopping for non-essentials - they can make do with.

Photos: 500 rupee notes - Satish Krishnamurthy; money lender in Mumbai - Cory Doctorow; ATM announcement - Satish Krishnamurthy; all via flickr