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Page 1 Date: Tuesday, July 5, 2022 Demonetizatio n in India Prepared by: Spire Research and Consulting YAMADA Business Consulting Date: 19 January 2017

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Page 1: 170119_Demonetization in India

Page 1Date: May 1, 2023

Demonetization in India

Prepared by: Spire Research and ConsultingYAMADA Business Consulting

Date: 19 January 2017

Page 2: 170119_Demonetization in India

Page 2Date: May 1, 2023

Spire’s capabilities and Network in Japan Merger with Yamada Business Consulting (YBC)

Spire is proud to announce its merger with YAMADA Business Consulting Co., Ltd. (YBC) – a subsidiary of JASDAQ – listed under YAMADA Consulting Group, a leading independent consulting group in Japan.  With the merger, Spire will be able to leverage the consulting know-how and tools developed by YBC such as Business Strategy, Market Entry into Japan, Merger & Acquisition advisory and other management consulting . Spire also gains enhanced access to the Japan market through YBC’s network of offices across Japan.

The merger makes Spire part of a much larger and publicly listed corporate group, which is expected to create better access to new consulting solutions, economies of scale, investment resources and synergistic business development possibilities.

The Spire Research and Consulting brand will become the global brand for YBC outside of Japan.

Page 3: 170119_Demonetization in India

Page 3Date: May 1, 2023

Spire Management Team based in Singapore

We were founded in the year 2000.

We have 100 employees in ten full-service offices.

We serve Global Fortune 1000 firms, governments and other leading organizations.

Our opinions frequently appear in print, television and radio media.

Broad spectrum of research and consulting solutions for market growth and entry.

9 Offices, Over 50 countries covered

Services Offered Holistic Market

intelligence Customer Research Competitor

Research Growth consulting Potential Partner

identification

Market Sizing & Feasibility

B-2-B and B-2-C Price tracking

Regulatory Research Decision Analytics Knowledge Process

Outsourcing

Page 4: 170119_Demonetization in India

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Spire Management Team

Leon PereraCEO of Spire, co-founded the Group in 2000; former Asst. Head in Singapore Economic Development Board and has also served as the head of AMI Business Consulting in Southeast Asia; holds a Double First class Honors degree in PPE from Oxford University, UK; overseen delivery of more than 2,000 projects, mainly to Global Fortune 500 clients; currently an NCMP in Singapore’s Parliament.

Japnit SinghDeputy CEO of Spire Group, manages Singapore, India and China; joined Spire in 2004; worked as architect and property consultant previously; managed and delivered more than 1,000 Spire research and consulting projects; holds an MBA from the Asian Institute of Management, Manila.

Saurabh SharmaCountry Manager for Spire India; formerly with EFY Group, Vertebrand Management Consulting and Grail Research; holds a full-time MBA in Marketing and Finance from IILM institute of higher education and BSc[H.S.] in Biophysics from Panjab University Chandigarh, India.

Singapore

India

Page 5: 170119_Demonetization in India

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Spire Country OfficeIndia

Spire's coverage in IndiaSpire has conducted research in more than 20 towns and cities located in over 10 states in India, covering all the major metros and many Class B and C cities. We have also worked extensively in Bangladesh, Sri Lanka and Pakistan.Our office in India is well-positioned to conduct research across many locations, including:

Page 6: 170119_Demonetization in India

Page 6Date: May 1, 20236

Yasuyuki (Luke) KitaGeneral ManagerSingapore

Luke joined Yamada Business Consulting Co., Ltd. in 2007 after his graduation and focused on supporting business recovery and growth strategy development for Japanese enterprises. He has covered a wide range of industries, including pharmaceutical, apparel, industrial, as well as food and beverage. He was then assigned to the Singapore branch office in 2011.

Having also lived in Canada as a student, he is well exposed to multicultural and English speaking environments, which has become a valuable asset to the company.

Luke graduated with Bachelor of Commerce in Finance from Kwansei Gakuin University. During his university years, he also joined an exchange program with Oxford University.

Luke is currently the General Manager of Yamada Business Singapore branch, and shuttles regularly between Japan and Singapore. As General Manager, he has been engaged in wide range of fields such as business expansion planning, M&A, and investment projects conducted with Japanese clients in Southeast Asian markets.

Yamada Business Consulting in Singapore

Languages Spoken:• Japanese• English

Page 7: 170119_Demonetization in India

7

Topic

1 Brief Overview – Demonetization in India

2 Major Trends – Demonetization

I Growth in Cashless Transactions

II Retail Industry

III Banks and NBFC Sector

IV Real Estate

Agenda

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Page 8Date: May 1, 2023

Brief Overview -Demonetization in India

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Page 9Date: May 1, 2023

Demonetization in India – A Brief Overview

On 8th November 2016, Prime Minister of India announced demonetization of INR 1000 (SGD 20.97) and INR 500 (SGD 10.48) notes.

The total value of the currency demonetized was approximately INR 15.44 Trillion (SGD 324 billion).

This currency formed 86% of the total currency in circulation by value.

98% of all consumer payments in India use cashPeople in India were given time to deposit old notes in banks between 9th November 2016 to 30th December 2016.

Before this there has been two prior incidences when Government of India has demonetized currency in circulation:

In January 1954, banknotes of 100 (SGD 2.09) and 1,000 (SGD 20.97) rupees were withdrawn and new notes of 100 (SGD 2.09), 500 (SGD 10.48) and 1000 (SGD 20.97) rupees.

The Janata Party coalition government demonetised banknotes of 100 (SGD 2.09) , 500 (SGD 10.48) and 1000 (SGD 20.97) rupees in January 1978 as a means of curbing counterfeit money and black money.

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68% of all transactions are Cash based in 2015

57% of online transactions are “Cash on Delivery”

80% of population was employed in the cash economy

Dependence of Indian Economy on Cash

India China Mexico SA Turkey Russia Brazil0

40

80

120

160

10.5 16.731.9

45.3 52.8

106.4

142.3

2015 Cashless transactionsPer capita number of transac-

tions with payment instruments

India

Swed

en

Mexico HK

China

Singa

pore SA

Turk

eyJap

anBra

zil UK

Austra

lia US

Russia

Cana

da

Korea

050

100150200250300350

18 40 49 50 55 59 66 77127129130161173185222

291

2014: Reach of ATMsAutomated teller machines (ATMs) (per 100,000 adults)

Swed

en SABra

zil UK

Cana

da

Austra

lia

Turk

eyKor

ea

Mexico US

Singa

pore

Russia

ChinaInd

ia HKJap

an0%4%8%

12%16%20%

2%3%3%4%4%4%5%5%6%7%8%9%9%12%

15%19%

Cash DominanceNotes and coin in circulation outside banks as a % of GDP

Source: India Chart Book – Capital Economies Limited

Source: India Chart Book – Capital Economies Limited

Source: India Chart Book – Capital Economies Limited

Page 11: 170119_Demonetization in India

Page 11Date: May 1, 2023

Reasons for Demonetization

Government had three main reasons to demonetize the currency

Shadow Economy

The government intends to integrate India’s shadow economy estimated to be 26% of GDP, into the formal economy, and hence address tax evasion

Counterfeit Currency

Government also aimed at reducing the flow of counterfeit currency from circulation.

92% of all the fake currency were found to be INR 500 and INR 1000 notes

It is believed the Counterfeit currency is also used by cross border organizations to support terror activities in the region

Cashless Economy

Another intention of the government is to increase cashless transaction to promote the transparency in the business dealings

This move is also expected to increase the number of people in the banking system, and boost organized economy further

1

2

3

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Economic Impact

Increase in tax collectionIn December 2016, Indirect tax collection went up by 14.2% year-on-yearAggregate tax collection from 47 urban grew by 236% between Oct and Nov 16Push towards a formal economyMany small and medium business have moved to the cashless transactions bringing them in the formal economyOrganization of the real estate sectorIndian real estate sector will get organized due to decrease in the unaccounted cash from the market

Decrease of Government DebtIt is estimated that government will be able to decrease its debt due to difference in the currency circulation and currency deposited

Pros Cons

Short term slow down in GDPIndia Ratings, on 2nd December 2016, lowered its GDP forecast for 2016-17 to 6.8% from 7.8% earlier, stating that the demonetization drive will lead to an erosion of INR 1.5 trillion (SGD 25.9 Billion) this fiscal year.

Job losses in the unorganized sector

It is estimated that approximately 400,000 jobs will be lost due to lack of liquidity in the market

Negative impact on most industrial sectors

Since this move happened in the season of sowing, many farmers were not able to sow their fields on time which will lead to the loss of agricultural output

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Economic Impact

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Major Trends - Demonetization

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1. Growth in Cashless Transactions

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Growth in Cashless Transactions

59%23%

18%1%

Preferred Payment Method Used After Demonetization

E-walletsNet bankingDebit/ Credit CardsCash

Oct 2016 Dec 20160

2

4

6

8

1.7

6.3

Growth in E-Wallet Services

Num

ber

of D

aily

tra

ns-

acti

ons

(in

Rs.

mill

ions

)

Paytm Freecharge MobiKwik Oxigen Citrus Others0%

20%

40%

60%50%

35%

9%3% 2% 1%

Most Preferred e-Wallets

Source: Survey Results of CashKaro-India’s largest Cashback and Coupons siteSource: Ministry of Electronics and Information

Technology

Source: Survey Results of CashKaro-India’s largest Cashback and Coupons site

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Credit and Debit card transaction also expected to grow as merchants adopt POS technology.The panel of chief ministers have decided to import around a million Point of Sale (POS) machines in India between January and March 2017.State Bank of India (SBI), the largest government bank of India, has been installing around 5 times higher the number of POS machines every day after demonetization as compared to the number of POS machines installed per day prior to the cash crunch in the economy.In addition to this, SBI faced excess demand for POS machines of around 70,000 even after 50 days of demonetization for which the bank ordered 150 thousand new POS machines to be installed by March 2017.

Before Demonetization After Demonetization0

300

600

900

1200

200

1000

Installation of POS Machines by State Bank of India

Aver

age

Inst

alla

tion

s pe

r D

ay

Source: moneycontrol website

Growth in Cashless Transactions

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2. Retail Industry

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Retail Sector – (1/2)

Increasing bargaining power of modern trade

Pre demonetization, modern trade comprised of only 8% of retail sectorSmaller suppliers now prefer to supply to modern trade due to uncertainty about the credibility of general trade customers. larger and institutional FMCG companies also push their products through modern tradeCustomers also prefer modern trade as they can accept cashless payments

However, sales of hyper premium products fell down, as consumers focus shifted to necessities in stead of luxury goods.

Shift to Organized Sector/ Modern Trade

35%

25%

15%

7%

7%

6% 5% 1%

Preferred Channel to Shop for Groceries(After November 8, 2016)

Card Payments

Amazon

Bigbasket

Flipkart

Grofers

Cash

Snapdeal

Paytm

India China Indonesia USA0%

25%50%75%

100%

8%20% 30%

85%

Share of Modern Trade

Source: Survey Results of CashKaro

Source: India Fact book, Yes Bank, December 2016

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Retail Sector – (2/2)

Between October 2016 and November 2016, the paan and cigarette retail shop business witnessed a fall of 3.6 percent.

Pharmaceuticals and Cosmetics shops experienced a positive growth of 2.4 percent and 0.5 percent respectively.

Gems & Jewellery trade was among one of the worst hit sectors as 80% of jewellery sales are on cash and rest on cards. As per Mr. Bacchraj Bamalwa - Director & Ex-Chairman of All India Gems & Jewellery Trade Federation, around 40% of the gems and jewellery shops are not having any sales post demonetization.The grocery sector as a whole experienced a decline of 2.1%.

Within grocery, packaged grocery grew positively at a rate 2.4% whereas the sales of categories such as impulse foods, personal care and household cleaning fell by 2% - 5%.

According to the Federation of Automobile Dealers Associations, the retail sales of automobiles had declined by as much as 30% in November 2016. However, the second-hand market and service stations were even worse hit due to the cash crunch in the economy.

Impact of Demonetization on different segments of Retail Industry

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3. Banks and NBFC Sector

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Increase in the Deposits

Growth in bank depositsUp till 2015 Bank deposits had stagnated between 68-69% of GDP but increased to ~72.6%

Improved financial performance and lower interest rates

Writing off NPA’s: Banks were able to write off NPA’s worth INR 70 Billion (SGD 1.2 Billion)Decrease in the deposit rates as well as lending rates (RBI has cut interests rates to a 6 year low just before the announcement)

FY 13 FY 14 FY 15 FY 1650%

75%

67% 68% 69%73%

Bank Deposits

Source: India Chart book, Yes Bank, December 2016

Bank 2017 2016SBI 8% 8.9%Union Bank 8.65% 9.3%IDBI Bank 9.15% 9.3%SBT 9.2% 9.45%IOB 9.15% 9.5%PNB 8.45% 9.15%*MCLR: Interest rats for new borrowers Rates from Jan 2017

RBI Interest Rates

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Increase in the Deposits

Reach of financial institutions would grow-In anticipation of the current move, Government has been driving financial inclusion under the Jan Dhan Yojana programBut usage of bank accounts has been low and is expected to rise

2014, Financial Inclusion Indicators

Bank Account ownership

53%

Used account to receive wages

4%

Used account to transfer money

<4%

Saved money with a Financial Institution

9.9%

Borrowed money from a Financial institution

6.4%

2014, Bank Account Penetration

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4. Real Estate

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4 On going trends in the Real Estate sector

Sluggish growth in the residential sector

Demonetisation and liquidity crisis. 30% of all transactions are believed to be in Cash

NIFTY Reality index

Reduction in home loan rates- which would help demand in the long run

Oct-15 Nov-16 Jan-17

9.30%9.10%

8.25%Home Loan Rate

Introduction of “Real Estate Regulator Bill” in March 2016:

• Enforces transparency of information to buyers

• Ensures developers have 70% of the funds required

• Penalizes developers for project delays

• Enables aftersales service

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Impact of Demonetization on the Real estate sector

Dependence on Cash

Impact

New Re-Sale

ResidentialLow / Mid High

• Little impact on sales of new launches by institutional developers

• Lower home loan rates may boost some demand• Resale volumes and prices may fall drastically

CommercialLow High

• Resale transactions have a high cash component and will be impacted

• Rentals expected to be unaffected

RetailLow High

• Lower rental collections and demand as consumer spending falls

Land Sales / Green fields

High High• Slow down is expected as fund dry up• Prices expected to fall by 20-30%, which would trickle down to

new projects• Agricultural land, would be greatest hit

DevelopersHigh High

• Smaller players will face liquidity pressure, as alternative means for funding dry up.

• May be an opportunity for foreign investors and financial institutions

Investment Markets

• Projects expected to be delayed due to liquidity crunch• FDI, private equity and debt players may see opportunities as

transparency and demand increases

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In Conclusion

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Conclusion

Cash constraints to continue well into 2017

Consumer spending and SME’s that are cash dependant would be impacted most

Government’s financial position will improve and lead to opportunities in infrastructure projects

Retail sector would slow, but will shift towards modern trade and online

Opportunities for players who can help in digitization and shift towards an organized economy such as:

Institutional investors, Online Payment companies, ICT and infrastructure providers

Further regulatory changes are expected in FY 2017

Ease of dong business and transparency to increase, making India more FDI ready

1

2

3

4

5

6

7

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Annexure

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31

Ease of Doing Business

World Bank Ease of Doing Business

IndicatorsRanks 2017 Ranks 2017 Rank 2016 Change in

Rank

Overall 130 131 -1

Dealing with Construction Permits 185 184 1

Starting a Business 155 151 4

Registering Property 138 140 -2

Getting Credit 44 42 2

Paying Taxes 172 172 0

Trading Across Borders 143 144 -1

Resolving Insolvency 136 135 1

Enforcing Contracts 172 178 -6

Getting Electricity 26 51 -25

Protecting Minority Investors 13 10 3

GST (Goods and Services Tax): Indian Government will be implementing GST tax from 1st July 2017 (Tentative) across India. It will have following benefits

Simpler Tax Structure: This will be easy to manage tax for local and foreign companiesCancellation of Local and state taxes: This will be the only tax applicable removing all local and state taxes Reduction in Prices: the prices of end products will reduce

Key Reforms for 2017

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Real Estate Sector

Immediate Impacts of DemonetizationMost infrastructure stocks have corrected sharply (fell 5-15%) – on execution and traffic growth concerns.Labour unavailability: Labour supply for construction work was impacted sharply, immediately after the demonetization announcement, as most of the are paid daily and in Cash.Decrease in home loan rates: Home loan rates by SBI (India’s largest bank) have decreased home loan rates to 8.6% from 9.10%. Other banks are also decreasing the home loan rates

This will positively impact the new home market for new buyersDecrease in the re-sale market: Majority of the resale of housing market operated in cash, this will be impacted severely and will take minimum 6-9 months to recover

Period Number of new units Launched Decline

October 2013 – March 2014

224,628 -13%

April 2014 – September 2014

153,432 -32%

October 2014 – March 2015

152,776 0%

April 2015 – September 2015

87,368 -43%

October 2015 – March 2016

78,544 -10%Source: Economic Time report (Link), Yes Bank Report on Real Estate Sector

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Indian Real Estate Market Before Demonetization

Additionally, in March 2016, government passed the ‘Real Estate Regulator Bill’, to introduce the buyer friendly policies.

This combined with lower property prices and lower interest rates is expected to give real estate market a big push in second quarter of 2017

• In 2016, India recorded 41.6 million sq. ft. (3.9 million sq. metres) of gross office leasing transactions an increase of 3.5 % over 2015.Office leasing will continue to grow. In 2016, Bengaluru was leader in office leasing due to IT companies

31%

18%14%

13%

24%

Office Leasing in India

BengaluruDelhi/NCRMumbaiHyderbadOthers

Source: Collier’s International Report on Office Leasing in India (link), Colliers India Residential Report (Link)

Bengaluru Residential Prices 2010 - 2018F