How Demonetization Is Affecting India's PC, Mobile Sales
Indian government’s decision to recall the high-value currency (Rs500 and Rs1000 notes) which accounts for more than two-thirds of the cash supply is currently affecting the sales of mobile phones and tablets [and the already dwindling desktop PC market]. While Mobile phone industry body Indian Cellular Association claimed that their sales have come down by 50 per cent owing to the demonetization move, analyst firm IDC calls it a “temporary contraction in the devices market in Q4 2016.”
According to IDC, cyclically, consumer purchases see a slowdown post the festival season in India. However, this year with the demonetisation process underway, the sequential decline is likely to be higher owing to the cash crunch the country has been facing since the second week of November.
Jaipal Singh, Market Analyst, Client Devices at IDC India said, “Considering the poor sales due to the current cash crunch in the country, earlier estimates for mobile phone has been revised downwards by 4.5 percent.”
Feature phone shipments may fall sharply by 24.6 per cent and smartphone by 17.5 per cent sequentially during the quarter ending December. The smartphone and feature phone shipments in July-September quarter stood at 32.3 million and 39.9 million units, respectively.
Cash is a dominant mode of transaction in the devices market as it enables quick transaction turnaround thus providing much needed liquidity for maintaining the demand and supply mix in the devices business.
The impact of this is expected to be more prominent in Tier 3 and beyond cities where small retail shops transact more in cash and penetration of digital payments is yet to reach the levels seen in bigger cities.
IDC said the move has already resulted in significant slowdown of demand across PC and mobile devices; not just in offline retail but in online channel as well, where cash-on-delivery contributes to a substantial portion of the sales.
“Although the early indications of October shipments were healthy, due to relatively poor sales in November, the inventory in channel is piling up which could take some time to liquidate as the cash deficit reduces. However, we expect this to be a temporary impact on the market, as shipments are likely to revive to normal run-rate and channel inventory health to improve by second half of CY Q1 2017,” Singh said.
Similarly, the tablet PC market is also witnessing a slowdown due to demonetization. From 1.06 million units in Q3 2016, the tablet shipments is expected to sharply decline sequentially by 23 percent in Q4 2016.
As per IDC forecast, the ongoing cash crisis is expected to pull down feature phone shipments sharply by 24.6 per cent and that of smartphone by 17.5 per cent during the quarter compared to the previous three-month period.
ICA has asked the government to allow use of old Rs 500 and Rs 1000 notes for the purchase of handsets against a valid ID proof such as Aadhaar or election card for a period of 30 days. It claimed that their sales have come down by 50 per cent due to cash crunch post demonetisation.
In a letter to Finance Minister Arun Jaitley, the association said, “The mobile handset sales have crashed and the sales are down in the brick and mortar channel, which is more than 80 per cent of our turnover… the daily collection of our trade and industry, which should be around Rs 350-400 crore is down by 50 per cent.”
The industry body said that purchase of mobile phones against valid ID card can be tracked using IMEI number. ICA National President Pankaj Mohindroo said that purchase of mobile phones will enable people move towards digital payment and ease pressure on cash transactions.
Until now, the government has allowed payment of some essential service in a limited manner like pre-paid mobile recharge, water, electricity bill, highway toll through old currency notes. ICA said that government is making effort to promote India as digital payment economy and mobile phones are at the centre of this endeavour.
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