The Opportunity of Demonetisation

A surgical strike is a military attack which results in, was intended to result in, or is claimed to have resulted in only damage to the intended legitimate military target, and no or minimal collateral damage to surrounding structures, vehicles, buildings, or the general public infrastructure and utilities.

On November 8, 2016, Mr. Modi Government announced that he is conducting a “surgical strike” in the government’s war against black money by demonetising Rs. 500 and Rs. 1000 notes worth Rs 15.4 lakh crore. (An allusion to the "surgical strikes" conducted by the Indian army against suspected militants in Pakistani-administered Kashmir on 29th September 2016, eleven days after the Uri attack.)

The deputy RBI governor, Mr. Gandhi, on December 13, said Rs 12.44 lakh crore of the old Rs 500 and Rs 1000 notes had been received by the RBI or in currency chests as of 10th December. Since then, the RBI has been silent on the issue and has put out no figures on the deposits of invalid notes made with banks or the value of such notes returned to the RBI. It could mean that the government’s aim of extinguishing black money has fallen flat.

According to reports, not confirmed by any official authority, 94% of the demonetised currency has returned to the banks, i.e. Rs 14.5 lakh crore out of 15.44 lakh crore. So, there is not going to be any quick Rs 2 lakh crore to Rs 3.5 lakh crore windfall for the government (as some experts estimated). The maximum the government can hope to gain from the mass suffering is a measly Rs 1 lakh – Rs 1.5 lakh crore.

The Centre for Monitoring Indian Economy (CMIE) has estimated Rs 1.28 lakh crore as the cost to the economy during the 50-day period from November 9th to December 30. This does not include many indirect costs, such as those from disturbing the supply chain. These 50 days are a little more than half of the 3rd quarter of the current financial year. Gross Domestic Product (GDP) was Rs 34.8 lakh crore in the same quarter of 2015-16.

Many people struggled to meet their needs with the Rs 2,000 - Rs 2,500 ATM withdrawal limit imposed by RBI. That’s if you managed to get your hands on the money in the first place! "Carpenters, maids, vegetable sellers are dependent on cash. Are you capable of reducing their trauma? Your aim is to wipe out black money but people are traumatised standing in queues for hours doing nothing," the bench comprising Chief Justice T S Thakur and Justice D Y Chandrachud said, pointing to the long queues at banks and ATMs.

A lot of people, esp. in rural areas spent days trying to exchange their hard-earned money instead of working, such that they lost their wages. Many farmers had no cash to pay the labourers and as a result those on daily wages lost their livelihood. The fact that co-operative banks were not allowed to exchange notes added to the trauma because most of the last mile banking in rural areas is done by co-operative banks as scheduled banks just don’t have the wherewithal to service far flung areas.

Post 8th November, around 100 people have been reported dead in incidents directly or indirectly linked to demonetisation. While it can be argued that a few of the deaths reported could have taken place even if demonetisation did not take place, the fact remains that most of the reported deaths could have been avoided in the absence of the currency ban.

What was really upsetting was the government's response to the Opposition on the issue of demonetisation-related deaths which was raised by prominent politicians during a six-hour debate in the Upper House of the Parliament. Nothing. Or next to nothing.

On 16th Nov 2016, Union ministers Piyush Goyal and Venkaiah Naidu responded to the Opposition on demonetisation but avoided talking about the deaths (At that time, the death toll was 33). Naidu compared the "difficulties" faced by people to, of all things, child birth. Goyal also acted as if no death had taken place and painted a rosy picture of the country.

Bankers themselves struggled to keep abreast of the government's announcements and amendments in connection with the note-ban since 8^th November. There were about 60 RBI circulars from 8th November to 31st December. That’s more than one per day!

On the economic front, FMCG bellwether HUL cut its advertising expenditure on TV in December, estimated at Rs 300 crore, by half for the month of December 2016. Other corporates in various sectors have also reported lower revenues due to demonetisation. But demonetisation has hurt agriculture and informal sector workers the most.

Demonetisation has also hit the PR sector… by hitting the clients of PR companies. There has been a definite slowdown in the PR business especially among clients in the real estate, building-material suppliers, consumer goods, tourism, two-wheelers, jewellery and banks. Most of these clients will be having a credit crunch at this time and will affect payments to their PR and Ad agencies.

However, there is a flip side to everything! In the aftermath of Demonitisation, there will also be need for companies to manage reputation and create demand. Life and business go on! Most client managements will put in money if it helps their brand recover faster than competition. Agencies will have to make that extra effort to build and strengthen ‘trust’.

Currently, the government is in a great hurry to promote digital transactions and the digital ecosystem in general. Not only have mobile wallets like PayTM received a great fillip but the Bharat Interface for Money (BHIM) app launched on December 30, 2016, has witnessed 15 million+ downloads since. Hopefully, the government will do what it actually needs to do… stop the generation of black income.

While the effects of which are still unfolding, it is clear that a shift to digital money and hence digitisation has abruptly happened. As consumers start making the shift to digital money in ever growing numbers, all brands will need to communicate to be relevant to get a pie of the digital money pie. More so, in the rural areas that were ignored by marketers so far. With the allotment of funds in the current budget to rural infrastructure and development, there will be increase in purchasing power of the rural population. Brands will need to begin, build and strengthen customer engagement with this customer base.

(This is a modified version of an article that has appeared previously in the PRCI Journal, Chanakya)

The Future of Money is Plastic In More Ways Than One

This article is a direct result of the Demonetisation drive initiated by Mr. Narendra Modi, the Prime Minister of India and the introduction of the new paper Rs. 2000 note. 

Our PM has been urging all sections of industry to not just “Make in India” but to use and adopt the latest technology for efficacy and efficiency. The one question that came unanswered in many discussions I’ve had was, “why have polymer notes not been used as replacement for the notified currency when a perfect opportunity presented itself?” 

Is it because Polymer Currency is not seen as eco-friendly or are we resistant to change (no pun intended)? 

The latest country to introduce polymer currency is Britain. People around Britain got their hands on the first polymer £5 notes issued by the Bank of England in September 2016. Discussions at the central bank over whether to replace the paper fiver with a tougher polymer version started much earlier in 2010. The plastic note that’s gone into circulation is smaller than the outgoing £5 note and features Sir Winston Churchill.

The Bank spent around £70 mn on the research, development and printing of the new banknotes. The team worked for years to develop its cutting edge security features, which include a see-through window. The £5 note is being printed by De La Rue, which also produces currency for countries such as Fiji, Mauritius and Guyana, as well as the UK passport and Microsoft’s certificate of authenticity.


So what are Polymer banknotes? 
Polymer banknotes are made from a very thin, flexible, see-through plastic film, such as biaxially oriented polypropylene (BOPP) or polypropylene. Base print layers are added to the plastic for the purposes of durability, opacity and reducing static. Various security layers are added to the base foundation, which include the characteristic raised print or intaglio. Using polymers also means that security can be further beefed up with a clear plastic see-through window, something not possible with paper notes and the use of metameric inks. 

Most paper currency worldwide, including India, is made from cotton paper with a weight of 80 to 90 grams per square meter. The cotton is sometimes mixed with linen, abaca or other textile fibres. 

Polymer scores over paper on many parameters:
1. Shiny plastic doesn't get wet and dirty like paper.
2. Features like the see-through windows are difficult to copy, so it's harder for criminals to make fake notes.
3. Polymer won't tear as easily as paper, so the notes should last longer, 2.5 times longer. They're even expected to survive if they accidentally go into the washing machine, although they'd melt under extreme heat.
4. Polymer currency is also recyclable at the end of its lifetime.

The downsides are: 
1.  Polymer notes cost more to produce in the short-term, which could be a drawback for developing countries. The payback from their extra durability comes over time.
2. Polymer money is designed specifically to resist attempts at folding. Hence, those who use folding wallets or prefer to carry notes in their pocket will have a difficult time making do. Or land up with a permanent crease in the middle of the note. 
3. Polymer notes are more slippery than paper and their slipperiness makes them harder to count by hand.
4. Polymer notes are incompatible with existing sorting, automatic payment and vending machines that deal with paper currency.
5. Polymer notes tend to get stuck together, when wet and making them difficult to pull apart. They could potentially lead to a consumer handing two bills stuck together instead of one, when making a purchase.
6. All the accompanying inks, coatings and applied features also have to last longer to meet the increased lifetimes of the notes. This includes inks that are visible under ultraviolet or infrared light, as well as those which are visible in normal circumstances.

Polymer notes were first issued as currency in Australia during 1988 (coinciding with Australia's bicentennial year). Their need was felt when forgeries of the Australian $10 note were found in circulation in 1967. The Reserve Bank of Australia was concerned about an increase in counterfeiting because colour photocopiers also went on sale to the general public in that same year. 

Have a look at the latest Australian $5 note to see how much the technology has improved. Click to see video.

Today, more than 20 countries around the world already use polymer banknotes, including Scotland, Australia, New Zealand and Canada. As with any emerging technology, countries have adopted polymer notes in their own way: some have used it across the whole range of banknotes, while others have used it only for harder working denominations where durability is paramount. 

It remains to be seen when we will see the 1st Indian polymer note. Recent articles have surfaced suggesting that the Indian Government is looking to introduce polymer notes. Will it be the hard working Rs 10 note or the high denomination Rs 500 note that has been counterfeited the most? 

How GST Will Change Car Buying Behaviour

Observers of Consumer Behaviour can look forward to interesting changes in consumer buying behaviour in India now that GST is going to become a reality. In particular, car buying behaviour.

Passenger vehicles in India are currently taxed at four different excise rates, in addition to Value-Added Tax (VAT) and cess, depending on their length and engine size. Effectively, the tax rate on small cars, less than four meters in length, works out to 24.2%. In the case of sedans with engines upto 1500 cc, the tax works out to 36.2%, while those with larger engines are taxed at 39.05%. Effective tax for premium sports utility vehicles (SUVs) and luxury cars works out to 42.5%.

Understandably, seven in ten models sold in India are either hatchbacks or sub-four metre sedans/SUVs because planning has been skewed in favour of the sub-four metre vehicle. A concept that owes its origin to the current excise duty structure that favours such cars and is unique to the Indian market! 



A trend that began with the Indigo CS and which even a global player like Volkswagen followed with the launch of its Ameo. 
  

A trend that have made sub-four metre SUVs the seasons hottest trend!


The suggested tax structure under the model GST law proposes just a dual duty structure—18% for non-luxury cars and 40% for luxury cars! If this gets passed, compact cars (including hatchbacks and compact sedans) will be cheaper by Rs.30,000-35,000, while the price of sedans may fall by nearly Rs.1 lakh! So one may see a slowdown in passenger vehicle sales as buyers will tend to postpone purchases, anticipating a price reduction in the first quarter of 2017-18.

Even if the government, hypothetically, goes with a dual slab of 18% and 24% for cars in the mass segment, the excise duty gap that exists today between the hatchback/compact sedan and a full-size sedan is likely to come down to 6% from the current 12%. This will narrow the price difference between the two segments. 


It may also mean that buyers may no longer see merit in compromising and going for a hatchback/compact sedan but instead may prefer buying a full-size sedan. 

Or better still a more premium full-size sedan.







What this actually means is that cars have a premium positioning in the market will benefit from the unified tax structure. 

That said, all car marketers have their fingers crossed... knowing that the smart Indian car buyer is rubbing his hands gleefully in anticipation.

Phase Deux: Elon Musk's Master Plan

Green energy, new auto products, autonomous and vehicle sharing are the best words to describe Elon Musk's new "Master Plan".

The Rise of Mahindra

When Mahindra & Mahindra Ltd. (M&M) launched their XUV 300, their beautiful SUV was the toast of the town. At that time, in a small seminar at Symbiosis Institute of Media & Communication, their Director of Corporate Communication was called to speak on Branding. Naturally, questions were flying fast & furious!

One student then asked when Mahindra would make cars. The eminent lady turned to the student and told him that Mahindra would never make cars. That’s not the Mahindra brand.

M&M yesterday launched its latest SUV – the NuvoSport, giving a further boost to its leadership position in the UV segment!

The NuvoSport is all that a car owner or should I say, automobile owner, would want in a compact SUV- best in class width and height, AMT technology for clutch-free driving,  a 1.5-litre diesel engine that delivers 74.6 kW (100 bhp) of power and torque of 240 Nm, flexible 5+2 seating, a unique adjustable and reclining 2nd row, plush dual tone interiors, faux leather upholstery, a 6.2” Touchscreen Infotainment System, ABS with EBD and dual airbags available as options right from the base variant and standard from the mid variant upwards.

What you need to admire about Mahindra is that they have kept their 4-wheelers true to their DNA that is reflected in their Brand Identity. They stand for tough utility vehicles. Or at least they look tough, like the baby from the stable KUV 100 (Kool Utility Vehicle One Double Oh).

Their future flagship will be the Aero coupe-like SUV. Unveiled at the Delhi Auto Expo 2016, the aggressive styling reflects Mahindra's futuristic design concept, with inputs from Pinninfarina, the Italian auto design house, acquired in December 2015. 

With seven decades in the UV business beginning with the Willys, Mahindra has come a long way! This is the auto brand to watch.

The Car that Might Change the World

Imagine getting 135,000 bookings for a car on the very first day of the launch! With the car not hitting the roads in the US before 2017! Thats the Tesla Model 3 for you!

Elon Musk has finally unveiled the Tesla Model 3 on 31st March 2016 to a world waiting with baited breath. Elon Musk says the Model 3 is the high volume, low cost electric car Tesla has been working to since its inception - and the first Tesla for the masses. Hence, this car is more important for Tesla than the Model S saloon or the Model X SUV. 

The buzz was so much that people lined up outside dealerships just to put down a $1000 deposit for booking one. By the time Musk unveiled a Model 3 at the sprawling Space X campus here in Hawthorne, California, 115,000 customers had put their money down!

When the Model S was introduced in 2012, it had everything most people would ever want in a car—roomy, comfortable, practical, quick, and reliable. In fact, Motor Trend and Automobile Magazine called it the car of the year in 2013. Tesla has steadily improved the Model S in different areas such that 0-60 mph comes in an incredible 2.8 seconds! In October 2015, it introduced the Model X, a handsome, falcon-winged SUV based on the Model S. 

But to change the world, one must have a car that you can sell to everyone. Át $35,000, the Model 3 promises to do just that. Inside, the new car feels just like the Model S and X—sleek and minimalist. The whole roof is glass, which makes any sunroof look like a peephole. And Tesla’s trademark enormous center console screen—here 15 inches instead of the usual 17—has been flipped to sit horizontally.

Doing 0-60 mph under 60 seconds, going 2015 miles before the next recharge, having a 5-star safety rating as well as autopilot safety features, the Model 3 might just be in Musk's words that "you will not be able to buy a better car for $35,000".

Now, we wait and watch to see the disruption it will cause in the industry.

Vitara Brezza is a Strong Wind

Maruti Suzuki has finally launched its first compact urban SUV, Vitara Brezza, at a mouth- watering price... and it received 2500+ bookings in 24 hours!

But the cat was already among the pigeons when Maruti Suzuki had unveiled the Vitara Brezza at the Auto Expo 2016. The Vitara Brezza is the car maker's answer to the Ford EcoSport and Mahindra TUV300. 

The Vitara Brezza has clearly been one of the most awaited sub-compacts in 2016 and as seen in the spy shots and teaser images. Racy leaked images of the Maruti Suzuki Vitara Brezza suggested a box-like profile with wide chrome grille, and black cladding on bumpers, wheel arches and belt line get black cladding for a rugged appeal. So naturally it had onlookers salivating, esp. when it was announced that this was the same car that would be sold and at a price between Rs 7-9 lakhs.

Ford dropped the price of their Ecosport by close to Rs 1 Lakh in anticipation of consumers flocking to the Brezza. Nothing like this happened with the launch of the TUV by Mahindra. Looks like the market leader in the compact SUV segment was clearly outflanked this time. 

Suzuki Brezza is not sold at Maruti's Nexa showrooms and may seem to onlookers that it is not "premium". Yet the Vitara Brezza has clocked 20,000 bookings as of now... and counting! Clearly Indians love the youthfulness of the Brezza. 

The consumer today is really the king and the automakers are going all out to spoil him/her further. This segment is only going to grow!