Demonetisation: short term pain, long term gain in franchising

With India poised to be one of the fastest growing economies, the Prime Minister’s Demonetisation move is a welcome for the franchise industry. With franchising business model being part & parcel across all valid industries in India, each industry will have a negative effect in the short term, but will eventually help increase consumption with lower taxes and interest rates.

I must say it is a laudable and historic attempt to sweep the decade long corruption and black money. As accountable citizens, we all should be proud of the fact that we elected a government, which was capable of taking such a brave decision for the long-term betterment of the country’s economy. Nevertheless, a certain percentage of the society might take this decision negatively in view of the fact that short-lived challenges are to be seen, which might intensely have a negative blowout impact; not everyone happens to be abreast of the decision’s short-term pain & long-term benefits. Get to know about few of them.

Enhanced organised biz growth- It is anticipated that long term, economic growth is to get a boost from the move as it leads to greater tax compliance, moderate prices and will also increases the government’s tax revenue. In addition to the shrink away in consumption, which would take at least a quarter to stabilise, cash-intensive sectors such as real estate and construction would be adversely affected & rest would be revived by the next two quarters. With all these moves, franchise industry hopes to organise a larger chunk of unorganised retail & services businesses shying away from franchising presently.

Commenting on the same, Rishab Soni , MD, SSIPL Retail Limited said, “The most recent demonetisation move, while will have a negative effect in the short term, will eventually help increase consumption with lower taxes and interest rates.”

As per Revathi Raju, Founder, SansKriti Global School, “I welcome the demonetisation move by the government. It really helps us streamline the economy. Demonetisation kills the parallel economy, which is good for the country. People need to have patience to see the real impact of demonetisation. It is going to help all of us in the long run. While the move from government is welcoming and bold, they should also work hard to ensure smoother execution of the plan. Besides demonetisation, the government should look at various other aspects such as taxations and should treat education differently from other corporates in the country. The government should understand the pain points of retaining and maintaining quality staffs, infrastructure and other expenses in mind, while working on the taxations and salary scales of the schools. Education institutions have to be regulated and at the same time should be treated with certain exemptions vis-a-vis other corporates.”

Franchise Businesses with lower APC (Average price per customer) suffer– The franchise business categories like QSRs including ice-cream parlours, small burger joints, takeaway eateries, beverage brands,speciality retailers like flower retailers, gifting brands, service sector like salons etc are presently suffering a lotas their major chunk of business was not used to accepting non-cash payment. Since their APC (Average Price per Customer) or Ticket Size is also low (less than Rs 500), their sales have dipped since consumers are preserving their petty cash, at least for essentials.

Franchise brands with high-value discretionary consumption worrisome - Franchise brands dealing in Auto, jewellery and consumer durable indicate that discretionary consumption has been impacted unreasonably. This is not surprising as consumers are prioritising spending on necessities than discretionary/luxury goods. Sales across franchise stores in these categories have dropped by 60%. With 86% of the currency in circulation becoming unusable for commercial transactions, sectors with very high ticket size will suffer the most, including luxury items, jewellery, real estate etc.

Credit Impact for franchise investors & franchisors-  With ample money coming into the banking ambit, deposit growth is likely to perk up and positively impact the savings rate. The medium- to long-term gains are likely to outweigh the short-term pains.In future, ease of doing business for franchise fraternity will witness a sea change. This would offer an enormous boost to franchise investors & franchisors too as they look for fresh capital for business start & growth.

Technology franchise brands will be the new sunshine sectors - With this move, credit/debit card transactions, digital payments, mobile payments and online banking has suddenly spiked up which in turn will push the vision of Digital India further. This will set the foundation for a golden era in the ecosystem of financial & technology franchise brands & start-ups, which will go over the opportunities in India for developing electronic payment methods. Apt time to go cashless, as it is both highly transparent, making life easy for the government and the common man. As per recent reports,about 1.2 crore Indians started using digital wallets and mobile payments surged to its highest ever reach at 70% while modern trade grew five times during the week following withdrawal of Rs 500 and Rs 1,000 notes.

GST on backburner for a while but will spark eventually - It would be too hard on the ground to handle two disruptive policy decisions in the space of less than six months. The impact of both these issues when put together would be plummeting & lasting. The combined shock of demonetisation and GST may be too much to bear for the state government and the party. Eventually 'One nation, one tax’ hailed as the single biggest economic reform bill since Independence will soon be rolled in.