De­mon­eti­sa­tion Snailed It

Fall­ing de­mand from mon­ey­less coun­try cousins hit con­sumer goods firms

The Economic Times - - The Edit Page - Ab­heek Bar­man

In 1917, in a mag­a­zine called ‘San­desh’ that he edited, Sukumar, fa­ther of Satya­jit Ray, wrote a story called ‘Hashir Golpo’, or Laugh­able Story. It was a tale of a post­mas­ter — a very ex­alted post at the time — and his pen­chant for telling tales that no­body, not even his bo­som bud­dies, found funny.

The story of the econ­omy is turn­ing out the same way. The gov­ern­ment claims things are fine af­ter the bizarre cash clam­p­down of Novem­ber 8, 2016. Num­bers, from busi­ness or fac­to­ries and farms, tell a dif­fer­ent story. If ev­ery­thing was fine, sales of stuff like bis­cuits, sham­poo, hair oil, potato chips and bhu­jia, and so on, would be gal­lop­ing, right?

Kis­san Fall in Ponds, while…

Well, they aren’t. In its Fe­bru­ary 5 edi­tion, this news­pa­per car­ried a re­port about the re­al­ity faced by com­pa­nies that make so-called ‘fast mov­ing con­sumer goods’ (FMCG), in jar­gon, from soap to chyawan­prash. The re­sults are dis­mal. This news­pa­per re­ported that be­tween Oc­to­ber and De­cem­ber 2016, sales of Go­drej Con­sumer Prod­ucts, which pro­duces Cinthol soap and Good Knight in­sec­ti­cides, among other things, fell 0.4%.

Hin­dus­tan Unilever Ltd (HUL) is In­dia’s largest FMCG com­pany, a sub­sidiary of Bri­tish-Dutch con­glom­er­ate, Unilever. It has been in busi­ness in In­dia for 84 years. Many things that you use at home ev­ery­day, like Pond’s and Pears soaps (launched when the com­pany was called Lever Broth­ers), Brooke Bond and Lip­ton tea, Bru cof­fee, Kis­san juices and jams, Lakme sham­poos and creams, Fair and Lovely bleaches and so on, are market lead­ers. HUL sales fell 1.2% be­tween Oc­to­ber and De­cem­ber.

It gets worse for com­pa­nies like Dabur, founded in 1885 by Dak­tar S K Bur­man — the first two let­ters of his hon­orific and the first three of his sur­name make up the brand name — which claims to be the world’s largest pro­ducer of mass-mar­keted ayurvedic prod­ucts, in­clud­ing chyawan­prash, a best­selling ‘tonic’ paste. Dabur sales dropped 6.5% be­tween Oc­to­ber and De­cem­ber.

Marico, a suc­cess­ful late­comer, com­pared to HUL and Dabur, has flag­ship brands like Para­chute co­conut oil and Saf­fola cook­ing oil in its port­fo­lio. Never mind: its sales sank 7.5% in the same time. Col­gate-Pal­mo­live, a di­ver­si­fied soap-to-pet food maker, which is listed only in the US and In­dia, saw sales plunge 7.7% af­ter de­mon­eti­sa­tion.

On Fe­bru­ary 8, an­a­lysts at bro­ker­age Moti­lal Oswal re­ported that prof­its af­ter tax (PAT) for 13 FMCG com­pa­nies that it fol­lows, have been flat year on year, for the Oc­to­ber-De­cem­ber quar­ter — for the first time in 12 years. This is only a top-down view of the im­pact of note­bandi, but it is im­por­tant for two rea­sons.

One, it proves that cor­po­rate In­dia is um­bil­i­cally bound to ru­ral Bharat, where more than 70% of cit­i­zens live and toil. Two, that note­bandi has hit Bharat and In­dia in equal mea­sure. To see why, re­mem­ber there is no red line be­tween cash and cash­less sec­tors in the econ­omy.

A com­pany like HUL will hap­pily pay sup­pli­ers with cheques or through elec­tronic trans­fers, but will glee­fully ac­cept small cash sales from mil­lions of dis­trib­u­tors across the hin­ter­land for, say, hair oil or de­ter­gent sa­chets that weigh a few pal­try grams. Where, then, is the red line?

…No Para­chute for Saf­fola

Al­most ev­ery­thing you eat — from ce­re­als and veg­eta­bles to meat — is pro­duced in the hin­ter­land, where bank branches are scarce and ATMs non-ex­is­tent. Most trans­ac­tions are in cash. Farm­ers buy fer­tiliser and seeds in cash, pay farm work­ers in cash. When 86% of the cash dried up, so did ru­ral In­dia.

This news­pa­per has re­ported that newly har­vested veg­eta­bles like pota­toes and toma­toes are be­ing dumped on high­ways or fed to cat­tle, be­cause farm­ers can­not af­ford the cost of trans­port­ing these to lo­cal markets — where prices have crashed be­cause cash has evap­o­rated. To­day, when there’s some cash avail­able in cities, this has led to a dif­fer­ent prob­lem.

The drop in sup­ply from vil­lages, where cash is scarce, has cre­ated sup­ply bot­tle­necks in cities. So, mid­dle­men and traders in In­dia will profit at the cost of Bharat. Food price in­fla­tion will shoot up in In­dia. Bharat will not gain from this.

There have been knock-on ef­fects: truck rental rates have dropped, truck sales are stag­nant, the en­tire econ­omy is slow­ing. On Wed­nes­day, we learnt that the ca­pac­ity util­i­sa­tion of plants that gen­er­ate elec­tric­ity us­ing coal or gas, is at a 10-year low. Why? Prob­a­bly be­cause thou­sands of small or mid-size in­dus­tries are back­ing down, mak­ing less. Mean­while, the gov­ern­ment will keep gloat­ing about the gains from note­bandi; cit­i­zens will find no cheer.

Any­way, back in Sukumar Ray’s story: his au­di­ence is jaded with the half-dozen ‘hu­mor­ous’ tales the post­mas­ter re­peats in­ces­santly. So, one day, they de­cide not to laugh.

The post­mas­ter is not amused, and asks, who else can tell bet­ter tales than him? His au­di­ence se­lects Bishu, not the best racon­teur in the world, to tell a tale. And for ev­ery sen­tence Bishu stam­mers out, they fall over each other in laugh­ter — only to put the post­mas­ter down.

Keep calm and slither on

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