Tanveer Kaur, a law student from Ahmedabad, had just finished shopping at a Gold Souk in Dubai when news filtered in about the happenings back home in India.

The reality did not sink in while spending in Dirhams. “Some of our friends were actually debating if we should buy more gold,” she says.

There was a dramatic turnaround of fortunes when Kaur got back to India. For a post-graduate who had probably blown up most of her money on vacation, the next few days have been an experience of ‘how to live life on a shoestring budget’. Her first cutback: she postponed the purchase of a pair of branded shoes.

Then, from spending about ₹300 on a lunch every day, she is now looking for options in the range of ₹70-90 for her mid-day meal.

Earlier, she used to take the taxi back home after her internship. Now she takes public transport.

The timing The other side of the story has been the timing of the cut. It happened on November 8, when most salaried employees had already withdrawn wads of notes just a few days earlier (mostly in ₹500 and ₹1,000 denominations). Here the cut-back has even been on monthly provisions.

Manish Gala, a grocer in South Mumbai, says daily sales have come down by almost 30-40 per cent over the last few days. “Regular customers are suddenly asking for two months of credit,” he says.

In some ways, this was expected. At present, there is very little usable cash in consumer’s hands, so naturally people are spending less. (About 86 per cent of the value of currency in circulation was in ₹500 and ₹1,000 notes).

While consumers such as Kaur may have enough money in the bank, there are enough and more reasons why women prefer to not stand in the serpentine queues outside banks and ATMs. Elsewhere, there are several cases of housemaids and drivers loaning a few hundred rupee notes to their employers. The boot is suddenly on the other foot.

‘Value for money’ in spotlight What do the developments of the last few days do to consumer spends? Will it spoil the next two quarters for Indian businesses? More importantly, what does it mean for the pricing of products?

“Especially in a country like India the perception of money can affect consumers in different ways,” says Ramesh Kumar S, professor of marketing at the Indian Institute of Management, Bangalore (IIM-B). He adds that while credit card users may not psychologically experience any difference as they are not physically parting with a ₹2,000 note, the middle class consumers, who form the bulk of the consuming class across categories, are likely to think that much more while parting with a ₹2,000 note. “Brands may have to enhance the ‘value for money’ perception among such consumers,” he says.

Others say that while consumer spending would certainly change in the short run, it will be business as usual in a couple of months. Siddharth Shekhar Singh, associate professor of marketing at the Indian School of Business (ISB), is one among them. “Everything else remaining the same, there is unlikely to be a long-term impact,” he says, but with a cautionary remark. “If the government brings in tax reforms along with the re-monetisation exercise, then consumer spending could change.”

Ambi M G Parameswaran, founder, Brand-Building.com, a branding consultancy, says that while the issue could subside as more currency reaches consumers, the bigger issue is the feeling of having less money in the wallet. “This is a scary feeling for people who are used to carrying thousands of rupees in their handbag or wallet. The sense of poverty can have negative impact on consumer psychology. We can expect this effect to slowly wane, as more money flows into the market,” he says.

Small becomes big Parameswaran sees the lower price points benefiting from the exercise. “Price points like ₹5 and ₹10 are going to become bigger and bigger as more and more national and regional brands embrace the strategy. The current demonetisation can, in fact, help this phenomenon as people scrounge to save up notes, by trading down,” he says. IIM-B’s Ramesh Kumar adds that retailers who expect consumers to stay loyal would have to offer several price points and build a clear differentiation with respect to the offerings in their respective product lines. Parameswaran adds that the bigger impact will be on conspicuous luxury goods consumption fuelled by the cash economy. “This will take a big knock but will recover, since ‘showing one’s wealth’ is now a part of urban and rural discourse. But this may take two quarters or more,” he says.

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