With 65% of ATMs Nonoperational, Goldman Warns India Is "Returning To Barter System"
By Tyler Durden
India continues to stagger from bad to worse followinhg Modi's demonetization. With just 35% of ATMs nationwide operational, Goldman warns the shortage of cash continues to incentivize the use of alternate payments, including extension of informal credit and a return to barter systems. Addtionally, the slowdown in activity is dramatically reflected in lower tax collections and discounts offered by luxury car companies.
Goldman Sachs recently introduced their India 'De-monetization dashboard' in which they track the progress of the Indian government's recent currency reform announced on November 8 via a variety of high-frequency data, including money supply, credit/deposit, interest rates, physical asset premia, real economic activity, price indicators and capital flows.
This week’s update shows that cash availability at ATMs is still low. On real economic activity, there were no major data releases this week. However, PMIs and auto sales data released last week suggested a significant slowdown in activity. Separately, anecdotal evidence suggested continued weakness in activity as shown in the lower indirect tax collections and various discounts given by luxury car companies.
Monetary infrastructure
According to Livemint, 95% of ATMs (out of 200,000 in the country) have been re-calibrated to accept new notes but only 35% of the re-calibrated ATMs are operational. Banks are preferring to make cash available in their own branches instead of making cash available at ATMs. Daily data from ATMs in the four key metro cities – namely Bengaluru, Delhi, Kolkata and Mumbai – show that people are still facing a ‘cash crunch’ in about half of the ATMs. The shortage of cash continues to incentivize the use of alternate payments including electronic payment systems, extension of informal credit and a return to barter systems. The government has further announced various measures to promote digital and non-cash transactions including discounts on digital purchase of fuel, suburban train tickets, and service tax exemptions on transaction charges up to INR 2000 on December 8.
Exhibit 1: Shortage of cash in ATMs continues
Source: CashNoCash, Goldman Sachs Global Investment Research
Exhibit 2: Still very elevated search interest for retailers accepting electronic payment
Trends in Google searches for key financial terms in India
Source: Google, Goldman Sachs Global Investment Research
Real activity indicators
On real activity, no major data was released this week. However, last week, India's Nikkei Markit manufacturing PMI moderated in November after rising to a 22-month high in October (Exhibit 3). The weakness was across the board, suggesting softening in manufacturing activity post the de-monetization announcement on November 8. The Nikkei Markit services PMI also dropped sharply in November driven by a significant decline in new business, also indicating the potential impact of the cash shortage.
Separately, industry-wide November auto sales (Exhibit 4) showed commercial vehicle sales declined by over 18% mom s.a., car sales declined by 4% mom s.a. and two-wheeler sales dropped by 15% mom s.a. Furthermore, registrations of motor vehicle have fallen since November 2016.
Exhibit 3: India's composite PMI declined sharply in November led by weak services PMI
Source: Haver …read more
Source: With 65% of ATMs Nonoperational, Goldman Warns India Is "Returning To Barter System"
