How India coped with demonetisation

Number of debit card transactions spiked and ATM withdrawals plunged; credit card usage, online banking unexpectedly showed a negative trend People reacted to the note ban by swiping their cards more often A question on the minds of commentators has been how India coped with the withdrawal of Rs1,000 and Rs500 notes in November, which reduced the stock of currency in circulation by a third. By the end of December, going by data released by the Reserve Bank of India (RBI), the stock of currency in circulation had fallen to nearly half of what it was before the currency withdrawal Last week, RBI finally released November data for “payment systems indicators” (a data set available on its website which is updated monthly), which can help throw light on how the way India transacted changed following the withdrawal of the high-value currency notes. As expected, people reacted to the withdrawal of cash by swiping their cards more often. Debit cards were swiped at points of sale 234 million times in November, nearly twice the monthly average for the first nine months of the calendar year. Interestingly, the increase in the use of credit cards at points of sale wasn’t as spectacular. What is notable, however, is that people used their credit cards for smaller transactions, with the average ticket size of a credit card sale falling to about Rs2,700 for November, down from over Rs3,000 over the first nine months of the year. As expected, the use of prepaid payment instruments (which includes mobile wallets, prepaid vouchers, etc.) also went up. In November, people made 169 million transactions using these instruments, more than double the average in the first nine months of the year, 77 million transactions per month The average value of such transactions had already been falling, and it dipped significantly following the currency withdrawal—indicating people used these methods for small transactions. In the wake of the withdrawal of currency notes, Indians also wrote more cheques. The total number of cheques written had been falling steadily over the years (March is an aberration due to the financial year end), but saw a small revival in the wake of demonetisation . What this also tells us is that while the banking system was crippled due to the focus on currency exchange, it wasn’t to the extent that it hindered the cheque clearance process. Interestingly, people used cheques for smaller amounts following the note withdrawal, with the average amount written on a cheque falling to Rs63,000, compared to Rs73,000 earlier in the year. Mainstream electronic payments, surprisingly, showed a negative trend. Real-Time Gross Settlement (RTGS), National Electronic Funds Transfer (NEFT) and Immediate Payment Service (IMPS) all saw a drop in the number of transactions in November (compared to October), which is surprising since one would have expected people to use these electronic transactions more. The total value transacted using RTGS (mostly used for business payments) went up, though. Elsewhere, ATM withdrawals expectedly dropped in terms of the number of transactions and value significantly, given the cash shortage and withdrawal limits. Overall, while the currency withdrawal did result in a sharp change in the use of payment mechanisms, it is not clear how much of this change is transient, and how much is a permanent impact. We will need to wait for the data for January, or maybe even February, to see if the note withdrawal has had a “permanent impact” on the way Indians transact. Source:livemint.com

Under IT lens: After demonetization, deposits of over Rs 2 lakh net Rs 7 lakh crore

Officials said accounts in which deposits of Rs 2 lakh and more were made since November 8 are under scrutiny. The bigger the deposits in banks since the demonetisation drive, the earlier you will get a notice from the income tax department. Officials said accounts in which deposits of Rs 2 lakh and more were made since November 8 are under scrutiny. Rs 7 lakh crore was deposited in more than 60 lakh such accounts since the government banned high-value banknotes, they added. The department suspects a part of the illicit cash in circulation before the government banned high-value banknotes may have come back into the banking system through such big deposits. While investigations into individual cases may take more than a year, all notices are expected to be sent out by March 31, the officials added. Transactions in bank accounts that remained dormant till November or new ones are also being monitored and banks have been asked to send reports on these. Read | Note ban not enough: Corruption in India is like water, it finds a way Ads by ZINC After the initial round of examination based on data analytics and response of the account holders under the scanner, the department will send specific notices, a senior government official told Hindustan Times. “The IT department has huge data…we will use data analytics to segregate genuine and non-genuine cases…though the deposit amount will matter while sending notices, it will also largely depend on the other parameters,” the official said. The IT department has already sent out over 5,000 notices. “We can also assure people that we will not blindly send notices as that would lead to harassment but people with discrepancy in their incomes and deposits need to worry,” the official added. Source:hindustantimes.com

One Month In, What's The Impact Of India's Demonetization Fiasco?

A month into India’s demonetization initiative, long lines of people looking to exchange notes still spew out of banks, some sectors of the economy continue struggling with the lack of readily available cash, the grassroots economy continues introducing electronic payment capabilities, and people are still transitioning to new ways of paying for basic goods and services. However, this is all a part of a monumental movement that could put India on a more financially modernized trajectory from here on out. On November 8th, 86% of India’s currency was nullified in a great demonetization effort that aimed to clean out the black market's cash supply and purge counterfeit notes from the economy which completely disrupted the social, political, and economic spheres of the world’s second largest emerging market. All 500 and 1,000 rupee notes were instantaneously voided, and a 50 day period ensued where the population could (ideally) redeem their canceled cash for newly designed 500 and 2,000 rupee notes or deposit them into bank accounts. India has done this before. In 1946, all 1,000 and 10,000 rupee notes were recalled. In 1978, 1,000, 5,000, and 10,000 rupee notes were demonetized. Indians queue up outside a bank to withdraw cash in Ahmadabad, India, Thursday, Dec. 1, 2016. Indian Prime Minister Narendra Modi, in his Nov. 8 televised address, announced demonetization of India's 500 and 1,000-rupee notes, which made up 86 percent of the country's currency. The government's sudden decision to withdraw large-denomination currency from circulation, has caused enormous hardship to millions of people in the country's predominantly cash-based economy. (AP Photo/Ajit Solanki) This recent bout of demonetization was planned in secret by a small, tight-knit group led by Prime Minister Modi, and it overtook the country like a flash flood. This surprise was by design, as it was feared that if the black market caught wind of what the government was planning they would find ways to rapidly unload their illicit cash, and the initiative would flop on one of its initially-stated goals. Of course, this meant that the rest of Indian society was also caught in the demonetization crossfire. Not even the banks — who would be required to do the heavy lifting on the ground — were in the loop. In the days following Modi’s announcement, the banks didn’t have enough of the newly designed banknotes on-hand to distribute in exchange for the canceled notes, and there simply wasn’t an adequate supply of smaller denominations in circulation to run the cash economy. Far from being a 50 day transition, it is estimated that even if India’s printing presses were to run 24/7 it would take upwards of four months to a year before the currency supply was adequately restored. “I personally think it's a chicken or egg situation because the more prepared you are, the more people who are aware, the more opportunity you're giving to people to find loopholes in the system,” said Arpan Nangia, the head of the India desk for HSBC’s commercial banking division. “Whereas the downside of making it a surprise was [that] the government and the central bank were severely unprepared to manage the whole situation.” Recommended by Forbes India's Central Bank Denied Its Big Payday As Demonetization Flops The On The Ground Impact Of India's 'Earth-Shattering' Currency Purge Absolutely True - Demonetization Will Boost India's GDP - But How True Is ... India's GDP Grows 7.3% In Q2 - Good, But How Much Will Demonetisation Slow... MOST POPULAR Photos: The Richest Person In Every State +91,793 VIEWS 'Pokémon GO' Is Getting A Disappointing Handful Of Gen 2 Pokémon In New Eg... MOST POPULAR Photos: The World's Highest-Paid Actors 2016 MOST POPULAR Super Mario Run Is Coming To Ios On December 15 Modi’s demonetization initiative caused a sudden breakdown in India’s commercial ecosystem. Trade across all facets of India’s economy was disrupted, and cash-centric sectors like agriculture, fishing, and the voluminous informal economy were virtually shutdown, with many businesses and livelihoods going under completely -- not to mention the economic impact of millions of people standing in line for hours to exchange or deposit canceled banknotes rather than working or doing business. "The unbanked and informal economy is hard hit," explained Monishankar Prasad, the New Delhi-based author and editor for Alochonaa, an Australian current events publication. "The poor do not have the access to structural and cultural resources to adapt to shock doctrine economics. The poor were taken totally off guard and the banking infrastructure in the hinterland is rather limited. The tech class has poor exposure to critical social theory in order to understand the impact on the ground. There is an empathy deficit." However, although India’s demonetization initiative was seemingly severely mismanaged, this doesn’t mean that the entire endeavor was a complete failure. 35 days in, there are some positive indicators. Like most other above-ground industries, India’s shadow economy had its financial legs taken out from under it with Modi’s currency purge. Similar to the other financial sectors mentioned above, the cash-centric black market for the most part ceased to function with the nullification of the bulk of its currency. “I think, in the immediate term all sorts of illegal activities, like terrorist financing, etc... have been completely hit,” Nangia said. While, like in other sectors, this virtual shutdown of the black market is more than likely only temporary, there may be some longer-lasting impacts. Cashless transaction systems have been encouraged across the board, which will not rid India of its massive black market but may make it a little tougher to conduct business. Also, this initiative indicates that such wide-ranging, deep-striking governmental actions to combat what it sees as corruption could happen again. The demonetization process has also repaired India's counterfeiting problem for the near to medium-term. It was previously estimated that 250 out of every million Indian bank notes were fakes. This recent culling of the bulk of the country's currency instantly rendered counterfeits as valuable as the paper they’re printed on. It has also been reported that the new 500 and 2,000 rupee notes are less vulnerable to counterfeiting, having advanced security features — with one report claiming that it will be “impossible” for Pakistan (India’s counterfeiting bogeyman) to fake them. It is also thought that Modi’s demonetization drive will wipe out a measure of corruption and tax evasion in India’s real estate market. “In certain parts of the country there used to be always an official amount and an unofficial amount for property,” Nangia explained. “Now with this so-called black money going out of the window people are expecting that the price of real estate is going to fall, which is going to make it more affordable for honest, tax paying people.” Source:www.forbes.com

India's Central Bank Denied Its Big Payday As Demonetization Flops

On Nov. 8 at 10:15 p.m. Indian Standard Time, India’s Prime Minister Narendra Modi made an unscheduled public address via live television that shook the world’s second most populated country to its core. Starting immediately, he said, all 500 and 1,000 ($15) rupee notes — 86% of the currency in circulation — would cease to be legal tender. The reason for this move was simple: India’s Ministry of Finance claimed that 500 and 1,000 rupee notes are being used to finance terrorism, fund illegal drug sales, fuel the black market, drive counterfeiting, and pay bribes. This so-called “black money” had reputedly built up to such epic proportions that Prime Minister Modi declared that enough was enough, that he would take it upon himself to wash his country’s currency supply in one fell swoop. Hundreds of billions of dollars — $224 billion worth of currency — was essentially recalled and newly designed 500 and 2,000 rupee notes would be printed and distributed to replace it. The people of India were given just 50 days to redeem their old notes for the new ones (which were often unavailable) or deposit their cash into bank accounts. An activist of Congress party holds banned 500 and 1,000 rupee notes during a protest against the government’s decision to withdraw high denomination notes from circulation, in front of Reserve Bank of India. (AP Photo/Mahesh Kumar A. ) This announcement was a shock to the country. There were no run ups to the announcement, no warnings, not even any rumors. It was a top secret undertaking, and this was by design. This was a strategic move by Modi to catch India’s massive black market with its proverbial pants down.As it turned out, this demonetization initiative was even plotted in clandestine backroom meetings in Modi’s private residence. Hasmukh Adhia, a bureaucrat who served as Modi’s principal secretary when he was chief minister of Gujarat state, was specially selected to mastermind the scheme together with a team of five trusted researchers who were likewise sworn to secrecy. Recommended by Forbes The On The Ground Impact Of India's 'Earth-Shattering' Currency Purge India Reels Under Modi's Rupee Whiplash SAPVoice: Turning The Internet Of Things Into An Internet Of Outcomes Modi's Demonetization Is a Cure Worse Than The Disease For India Absolutely True - Demonetization Will Boost India's GDP - But How True Is ... MOST POPULAR Photos: The Richest Person In Every State +109,355 VIEWS New Pokémon: Major Announcement Coming To 'Pokémon GO' Tomorrow MOST POPULAR Photos: The World's Highest-Paid Actors 2016 MOST POPULAR Super Mario Run Is Coming To Ios On December 15 The idea was that India’s central bank would revoke its backing of the bank notes that the black market and counterfeit empire was built upon, rendering them worthless pieces of paper. At that time it was thought that those involved in the shadow economy wouldn’t be able to redeem their “black money” and the national reserve would be the recipient of a colossal pay day. Part of the exchange process for old notes consisted of a proverbial dragnet to catch black money by formally scrutinizing large transactions and then doling out the appropriate taxes or fines. India banked on the black market simply not showing up for fear of being caught, and just sit idle as their illicit gluts of cash unceremoniously expired into worthless pieces of paper. Theoretically, by having a large amount of canceled banknotes going unredeemed, the Indian government could essentially pocket the balance, which was estimated to be as high as 21% of the currency being recalled — or roughly $45 billion. “Now it is not being explicitly stated — and in some cases they are going to deny it — but if a certain amount of cash does not come back then the central bank no longer has to account for that money,” said Arpan Nangia, the head of the India desk for HSBC’s commercial banking division. “So, for example, if a billion dollars does not come back then it’s like a billion dollar profit for the central bank.” Unfortunately for Modi and India’s central bank, this payday never materialized. As of now, over 82.5% of the recalled notes have been turned in, and it is estimated that by the time the redemption period is over on December 30th essentially all nullified notes will be officially collected — white and black alike. How the black market was able to take such large amounts of illicit funds and redeem them via the demonetization program is not yet fully understood. Some theories have it that large amounts of previously inactive bank accounts were utilized or money was laundered via various tax-exempt entities. India’s Enforcement Directorate is currently investigating bank branches throughout the country. However, India also offered an amnesty program for black market players, where the government would accept illicit cash at a 50% tax, and how much of the recovered notes were part of this program is currently unknown. That said, the large amounts of black money that Modi and Company were attempting to wipe out may never have existed in the first place. Prior to this recent wave of demonetization, various studies have indicated that only 6% or so of India’s black market wealth is actually kept in cash. In 2012, India’s Central Board of Direct Taxes came out and publicly advised against demonetization on the grounds that most of country’s illicit wealth is kept in real estate, bullion, and jewelry — not in 500 and 1,000 rupee banknotes. Source:www.forbes.com

The impact of demonetization on Indian market valuations

One way to isolate the impact of demonetization is to consider the premium valuations that the Indian market enjoys vis-à-vis its peers in Asia Emerging markets have been hit by rising bond yields in the US after the election of Donald Trump as president. At the same time, the Indian market has been affected by demonetization. One way to isolate the impact of demonetization is therefore to consider the premium valuations that the Indian market enjoys vis-à-vis its peers in Asia. The accompanying chart plots this premium that the MSCI India Index has over MSCI Asia ex-Japan Index. As the chart shows, the premium has come down since 8 November. MSCI India’s one-year forward price-to-earnings (P-E) multiple was 16.85 on 8 November, compared to 12.84 for MSCI Asia-Pacific ex-Japan. By 6 December, MSCI India’s P-E was at 15.9 compared to 12.59 for MSCI Asia-Pacific ex-Japan. Clearly, the Indian market’s P-E has fallen much more than that for the Asia-Pacific ex-Japan markets. That compression in the India premium is the impact of demonetization. Source:livemint.com

India’s Demonetization Disaster

NE W DELHI – Indian Prime Minister Narendra Modi announced that, at the stroke of midnight, some 14 trillion rupees worth of 500- and 1,000-rupee notes – 86% of all the currency in circulation – would no longer be legal tender. With that, India’s economy was plunged into chaos. Modi’s stated goal was to make good on his campaign pledge to fight “black money”: the illicit proceeds – often held as cash – of tax evasion, crime, and corruption. He also hoped to render worthless the counterfeit notes reportedly printed by Pakistan to fuel terrorism against India. Nearly a month later, however, all the demonetization drive has achieved is severe economic disruption. Far from being a masterstroke, Modi’s decision seems to have been a miscalculation of epic proportions. Chicago Pollution Climate Change in the Trumpocene Age Bo Lidegaard argues that the US president-elect’s ability to derail global progress toward a green economy is more limited than many believe. The announcement immediately triggered a mad scramble to unload the expiring banknotes. Though people have until the end of the year to deposit the notes in bank accounts, doing so in large quantities could expose them to high taxes and fines. So they rushed to gas pumps, to jewelry shops, and to creditors to repay loans. Long queues snaked in, out, and around banks, foreign-exchange counters, and ATMs – anywhere where people might exchange the soon-to-be-defunct notes. But, upon getting to the front of the line, people were often met with strict withdrawal limits, because, in a display of shocking ineptitude, not enough new currency was printed prior to the announcement. Worse, the new notes’ design prevents them from fitting into existing ATMs, and their denomination – 2,000 rupees – is too high to be useful for most people, especially given that the government’s failure to print enough smaller-denomination notes means that few can make change. India’s previously booming economy has now ground to a halt. All indicators – sales, traders’ incomes, production, and employment – are down. Former Prime Minister Manmohan Singh estimates that India’s GDP will shrink by 1-2% in the current fiscal year. But, as is so often the case, the impact is not being felt equally by all. India’s wealthy, who are less reliant on cash and are more likely to hold credit cards, are relatively unaffected. The poor and the lower middle classes, however, rely on cash for their daily activities, and thus are the main victims of this supposedly “pro-poor” policy. Small producers, lacking capital to stay afloat, are already shutting down. India’s huge number of daily wage workers can’t find employers with the cash to pay them. Local industries have suspended work for lack of money. The informal financial sector – which conducts 40% of India’s total lending, largely in rural areas – has all but collapsed. India’s fishing industry, which depends on cash sales of freshly caught fish, is wrecked. Traders are losing perishable stocks. Farmers have been unloading produce below cost, because no one has the money to purchase it, and the winter crop could not be sown in time, because no one had cash for seeds. Despite all of this, ordinary Indians have reacted with stoicism, seemingly willing to heed Modi’s call to be patient for 50 days, even though it could be much longer – anywhere between four months and a year – before the normal money supply is restored. The government’s assiduous public relations – which portrays people’s difficulties as a small sacrifice needed for the good of the country – seems to have done its job. “If our soldiers can stand for hours every day guarding our borders,” one popular social media meme asks, “why can’t we stand for a few hours in bank queues?” But the sacrifice extends far beyond queues. Hospitals are turning away patients who have only old banknotes; families cannot buy food; and middle-class workers are unable to buy needed medicine. As many as 82 people have reportedly died in cash queues or related events. Furthermore, it seems likely that many of the short-term effects of the demonetization could persist – and intensify – in the longer term, with closed businesses unable to reopen. It could also cause lasting damage to India’s financial institutions, especially the Reserve Bank of India, whose reputation has already suffered. Perhaps the worst part is that these sacrifices are not likely to achieve the government’s stated goal. Not all black money is in cash, and not all cash is black money. Those who held large quantities of black money seem to have found creative ways to launder it, rather than destroying it to avoid attracting the taxman’s attention, as the government expected. As a result, most of the black money believed to have been in circulation has now flooded into banks, depriving the government of its expected dividend. On top of all of this, the government’s plan does nothing to control the source of black money. It will not be long before old habits – under-invoicing, fake purchase orders and bills, reporting of non-existent transactions, and blatant bribery – generates a new store of black money. Many Modi supporters claim that the demonetization policy’s problems are a result of inept implementation. But the truth is that its design was fundamentally flawed. There was no “policy skeleton,” no cost-benefit analysis, and no evidence that alternative policy options were considered. Judging by the blizzard of policy tweaks since the announcement, it seems clear that no impact study was carried out. Fake news or real views LEARN MORE Yet, rather than recognize the mounting risks of the non-transparent policy environment he has created, Modi has been discussing going even further, moving India to an entirely “cashless society.” Does he not know that more than 90% of financial transactions in India are conducted in cash, or that over 90% of retail outlets lack so much as a card reader? Is he unaware that over 85% of workers are paid in cash, and that more than half of the population is unbanked? Modi came to power in 2014 promising to boost growth, create jobs for India’s youthful population, and encourage investment. His poorly conceived demonetization has made a mockery of these objectives, while bruising his reputation as an efficient and competent manager. How long it will take for India to recover is anyone’s guess. Source:project-syndicate

Demonetisation for growth

Prof. M. K. Bhat The bold decision announced by Prime Minister Narender Modi on Nov 8, 2016 to demonitise nearly 86% of the total currency, left people shocked and awesome. In his televised address, he announced that notes of 500 and 1000 will cease to be legal tenders. This assured people that Modi means business on containing corruption and at the same time tremors went down the spine of corrupt politicians, bureaucrats and business men. Those with legal money had nothing to hide and others thought of ways to hide the unaccounted money. The demand for Jan -dhan cardholders increased, people were paid to be in line, past debts got cleared and even salaries were given in advance, rivers and temples flourished with 500 and 1000 rupee notes. The long queues outside banks came in to existence with complete restraint of those standing for hours, conveyed the acceptance of Modi’s demonetization to control black money, by people. People, no doubt face inconveniences for cashing their own money but there was no hooliganism as propagated by certain quarters. The problems in the initial stage especially in the rural areas was due to lack of banking infrastructure while as no big issue was visible in urban areas after a day or two. The urban India is full of banks and plastic money is quite in vogue, only 27 % of the villages have banks within an area of 5 kms. The mature attitude of masses despite undue provocation from certain quarters has hinted opponents about the changing times and their shrinking political space. It is for the first time in the history of free India that opposition has come openly in favor of corruption in the parliament, despite the sentiments of people being on the other side. Delhi Chief Minister was not allowed to deliver his sermons by people at various places. It is difficult to judge whether opposition fell in love for the people in line suddenly or they are searching for some chance in the guise of poor man’s ill conditions. How their demand to take back the decision will help the poor people is beyond the imagination of any economist or common man. It needs to be ascertained whether opposition to the attack on black money, is a degradation of values of our political class or a matter of survival or opposition because it was started by Modi. The biggest irony is that those who attained political power on the plank of corruption are against this move and nothing else can be expected from those who are notorious for scandals, chit fund and fodder scams. In a democracy, one can easily judge the worth of those politicians who are not on the same page with their people. Political leaders have made it a big issue in the parliament, whatever is the case, and they are simply exposing themselves in the eyes of people and add to the stature of Modi by being all against one. A survey conducted by C Voter in nearly half of the total parliamentary constituencies has found that demonitisation of 500 and 1000 note was held as a worthwhile attempt to combat black money by people . The flimsy arguments put forward against demonetisation convey the nefarious intensions of the opponents. Certain people hold that it should have been discussed in the parliament; this is absurd statement and goes against the very spirit of demonetisation. Others have started to target the process of demonetization; the fact is that demonetising huge currency in such a big country could not have been possible in any better way than this. According to RBI as on March 2016 currency in circulation was Rs 16415 bn; 500 rupee notes accounted for 47.8% in value and Rs 1000 notes another 38.6% together they were 86% of the value of notes in circulation. The continuous monitoring by government is worth appreciation and has helped to stop channeling of the black money in new areas. The Prime Minister in his lecture had held demonetization as an attack on; terrorist funding, counterfeit currency and black money. All three objectives are sensible and demonetisation was quite necessary to tackle them. There were 400 crore worth counterfeit currency in circulation. It is used for terror funding, stone pelting and drug smuggling in the country.The devastation propagated through this money could be in billions. The anti social elements and their supporters from across the border used it as a big weapon of destabilisation. Black money leads to poverty and taxes the honest tax payer. Demonitisation will remove conspicuous consumption, thereby the artificial demand will come to a lower level, and prices will decrease. The decrease in prices will boost demand in the market. The rate of interest will decrease which may lead to an escalation in investment and jobs. Banking sector being the life of an economy will get new lease of life by an improvement in its nonperforming assets which at present are at horrific levels. It will help to reduce the social inequality by bringing tax evaders under tax net, the honest tax payers will get a bit relief and the gap between the law abider who pays tax and law avoider who enjoys for being dishonest will come to a lower level. India’s tax revenue as a percentage of its GDP is 16.7 % in 2016 compared with 25.4% in USA and 30.3% in Japan. The increasing aspirations of people demand social and infrastructural development which will have a direct impact on the poor and can be fulfilled upto a great extent by getting the unused money in the main stream of the economy. It is no doubt that demonetisation will influence only the stock of money. There is a need to control the flow of money too. We need to control the root cause of corruption otherwise the sources of black money may once again accumulate huge amounts over the period of time. Generally high tax rate leads to tax evasion and ends in black economy. Taxes will have to be curtailed to make people responsive to the tax system. In order to control the flow of money the Government rightly propagates for cashless economy. According to certain estimates transactions that take place outside formal channels amount to around 20% of India’s annual $2trillion GDP. The use of plastic money will lead to more accountability in the system. In order to control black money, tax raids are being conducted and the government is going to chase Benami property in the country. GST will be another right step in this direction, it will reduce the tax rate, may increase tax revenue. The opposition by stalling parliament is simply delaying action on these important issues and is preparing soup for the corrupt people in the country. Source:dailyexcelsior

Demonetisation: FM radio firms seen taking a Rs40-50 crore hit.

In the wake of demonetisation, FM radio revenues will likely decline as brands have suspended ad campaigns scheduled for November and December.FM brand Radio Mirchi, owned by Entertainment Network India Ltd (ENIL), has suspended seven on-ground events including concerts planned for December as the withdrawal of old Rs500 and Rs1,000 notes crimps spending. Ticket sales for two events scheduled for November—Mirchi Live with Mika Singh and Daler Mehndi and the Mirchi Sufi Music Festival—crashed by more than 50% following demonetisation. ENIL is the radio broadcasting unit of Bennett Coleman & Co. Ltd. Radio Mirchi is not the only one facing headwinds due to the cash crunch. Media buyers estimate FM radio companies are likely to lose about Rs40-50 crore in on-ground activities and advertising revenue as brands have suspended ad campaigns scheduled for November and December. “Tangibly, advertising (revenue) may be down by about 10-15% of November’s usual numbers. But our concerts business has been hit, with ticket sales crashing after 8 November. Even some sponsors have walked out,” said ENIL chief executive Prashant Panday. Tarun Katial, chief executive of Reliance Broadcast Network Ltd (RBNL), which operates 92.7 Big FM, agreed there was a knee-jerk reaction, with advertisers taking a step back. “Ever since the demonetisation policy was implemented, many of the advertisers including real estate, education, FMCG, retail and automobile have started cutting on their committed advertising and in some cases, the drop has been to the extent of 50% or more,” he said. On 24 November, RBNL signed an agreement with Zee Media Corp. Ltd to sell a 49% stake in its radio broadcast business to the latter. According to Harsha Joshi, executive vice-president of group trading at Dentsu Aegis Network, the sector is mainly dependent on retail advertisers and because of demonetisation, “the retail business has been affected the most. Marketers are finding it difficult to continue the advertising activities due to drop in sales. There is a hesitation in the ad industry right now,” she said. However, industry executives expect the situation to improve in January. “Whenever an economic reform such as this is implemented, it does take time for the ecosystem to get accustomed to the change and get back to normalcy. In four to six weeks, things should be back on track if adequate support is received from the government,” said Katial.HT Media Ltd, which runs Fever 104 and Radio Nasha, did not comment on the issue. HT Media, the publisher of Mint, competes with other radio firms in several markets. Source:livemint