New Delhi: Four months after demonetisation of high-value currency notes in India, the impact of the exercise was more pronounced on feature phone sales, where Indian handset makers dominate the market, than on smartphone sales, where Chinese and global firms predominated, a new research has found.
Total mobile phone sales in India stood at 25.69 million units in October 2016, falling by 16% to 21.33 million units in November 2016, the first month into demonetisation, an article published in ISBInsight, the research periodical of the Indian School of Business, by authors Chirantan Chatterjee, Shreekanth Mahendiran and Neil Shah said.
At the end of February 2017, only 18.16 million units were sold, 78% of the monthly average of the pre-demonetisation period between March 2016 and October 2016.
The Indian government had on 8 November, 2016 announced that 500- and 1,000-rupee notes would no longer be legal tender and that this measure was aimed to root out black money from the system and crack down on counterfeit notes. The exercise had adverse effects on many sectors such as agriculture, trade and real estate, where a chunk of transactions were made through cash.
“The effect of demonetisation is more pronounced on feature phone sales than smartphone sales. The market share of feature phones, in terms of units sold, declined from 59.56% in October 2016 to 47.87% in February 2017," the report said.
The research uses data provided by Counterpoint Research on prices, quantities and non-price characteristics at the stock-keeping unit level reported monthly from March 2016 to February 2017.
As per the study’s sample, monthly sales of feature phones declined by 3,738 units for global firms, 1,210 units for Chinese firms, and 879 units for Indian firms post-demonetisation relative to the pre-demonetisation period. On the other hand, smartphone sales per month increased by 2,520 units for global firms and by 13,810 units for Chinese firms.
Indian firms experienced an overall decline in sales despite an increase during December 2016 and January 2017, the report said.
“Post-demonetisation, feature phone sales from Indian firms reduced drastically to 4.68 million units in February 2017, about 0.68 times the number of units sold during October 2016. Smartphone sales by Indian firms also showed a declining trend, in sharp contrast to the growth seen by Chinese and global firms," the report added.
The demand for smartphones would have increased as more individuals became aware of their features such as access to digital platforms, especially in a scenario of cash-shortage.
While the suddenness of the demonetisation announcement would have made it difficult for handset makers to shift manufacturing from feature phones to smartphones to meet the expected increase in demand, Chinese firms have, since early 2016, expanded their credit lines, which has enabled them to stock more products at stores and increase product availability.
“Chinese firms were in a more favourable position to exploit the cash shortage among mobile distributors to aggressively promote their products," the report said.
“We cannot definitively conclude that a policy aimed at increasing cashless and digital transactions, and curbing illegal cash and terrorism financing has had the perverse effect of damaging Indian firms and elevating foreign competition, specifically from China, in the mobile phone market," the report said, but added that it can be argued that demonetisation has certainly been associated with a decline in market share of Indian firms, and in Chinese firms exploiting the uncertain conditions to change the market structure and gain a more dominant market position.