Demonetization: a bigger, better move for the franchise industry. The Prime Minister Narendra Modi’s decision of demonetizing Rs 1000 and Rs 500 notes -the two highest currency denominations in India -is a historic effort to sweep up the decades old parallel economy. The decision by the government will surely prove a milestone for the Indian economy in the long run. As India is poised to become one of the fastest economies, this move will surely bring a bigger, bet ter and clear picture in thefranchise industry as well.
The demon in demonetizing: a short-term nightmare
In the short term, demon etizing, without any doubt, will be a nightmare for a lot of consumer business activity, but see the brighter side, in the long run; it would have more business benefits. The service sector, which domi nates economic activity and involves a sizable chunk of cash transactions, will hit the hardest. The most affected businesses are where transaction was Rs 1000, or within, and most people would not find it worth using a card for it.Whether it is a store, or an e-commerce platform, a fall in discretionary consumption will hurt companies operating in this space.The fall in economic activity due to demonetization could last from two to three quarters.
The bigger picture
Finance Minister Arun Jaitley recently shared, “The goal of this is to clean transactions, (to) clean money.” The size of the organized economy, which the government will manage though its policy actions, would increase and would be significant in the coming months. The franchise industry will see a lot of positive impact on its growth in the coming year with more investments flowing into the franchise businesses, better franchise financing through banks, a move towards digitization and
cashless economy that would be faster in the franchise industry because of its transparent operational structure, and finally it will bring more competitive en vironment for franchisees to conduct their business against traders, small and mom-n pop businesses.
Shift in investment activity:
Demonetization will be an eye-opener for majority, who believed in savings and doing passive investment on cash, real estate, and gold jewelry.Since the announcement, the real estate prices and equity stocks have dipped by almost 30 per cent.Gold deposits over 500 gram, not explained by known source of income, will also attract income tax under the gold monetization scheme.
Franchising can play a bigger role in this. People will now become wary of holding cash reserves; rather they would want to pump investments into a franchise business, which could give them good and clean ROI. This will open up new avenues for women, retired, young, who would be excited to park their capital into a franchise holding. According to an estimate by The Franchise World, the franchise investment could grow Rs 500-600 crores by quarter three of 2017.
Franchise businesses will become competitive:
Small businesses like kirana and mom-and-pop stores by and large had cash transactions, which allowed them to get awaywith the paying taxes by not showing their real record. This made franchise businesses less profitable as compared to small unorganized businesses, which have to re port and keep business management fair and transparent as per the rules of the franchising model. Demonetization will make franchise business more competitive as they are already compliant and organized and this time they would be able to up their game against the unorganized mom-and-pop stores.
More funds and easy lending to organized businesses:
Post-demonetization, the Indian banks have seen a considerable rise in deposits of around Rs 5 trillion till 18 November 2016. Banks are already reducing their lending rates and with lower interest rates on existing floating rate loans and new loans, it means franchise businesses will be able to take an advantage of small business loans and start-up loans from banks that were not available earlier. Banks might tie up with credible franchisors and franchise brands to fund their fran chisees’ business needs.Lower interest rates should, all else being equal, produce a stimulus to the economy.
Better digitization in franchise ecosystem:
Franchise systems are by and large big brands and organizational entities. Collectively the brand has more financial and operational muscle to carry out new technological and digitization changes that new Indian ecosystem will need in order to create a cashless economy. Indian franchisees are more aware, exposed and forward thinking to take changes in their stride and actively bring about transformation that would make their franchise a better system to do business for the ease of
consumer.The resilience and the come through into a new business ecosystem will be the fastest by the franchise industry under this new cashless regime.