Following a decision by the Indian Government to recall all 1,000 and 500 rupee currency notes from circulation in November, the duty free industry is monitoring the situation in India closely as some believe that sales could be impacted – at least in the short-term.

 

The government believes that demonetisation will help to fight corruption and ‘black money’ (funds earned on the black market), but it appears to have created somewhat of a stumbling block for the economy in the first couple of months since action was taken. In January the World Bank downgraded the Indian economic growth forecast by 0.6%, as the country struggled to replace the two-highest value banknotes.

 

However, at 7% India’s growth forecast is still stronger than any other major world economy and many analysts do not foresee that the effects of demonetisation will be long lasting. But even short-term effects in combination with a cocktail of other currency factors could reduce Indian travellers’ propensity to spend in the first half of 2017.

 

Sang-Joon Ahn, Vice President Commercial, Bangalore International Airport told TRBusiness in the Global Industry Survey [available in the January issue of TRBusiness magazine] that the airport is already seeing an impact from the move. This could potentially be made worse by the introduction of the new GST (Goods and Service Tax) scheme in April. [It is now likely that the GST implementation will be delayed as the country grapples with the effects of demonetisation].

 

“The general trading environment [in India] will definitely be better this year, along with the growth of the travel market. However, in India we also experience the demonetisation impact to a certain extent.

 

GOODS & SERVICES TAX

“The other variant is introducing the new GST scheme to the economy, which is scheduled to come in from April 2017. We are expecting the duty free business will be exempt from the new scheme. But this is for sure a part of the new change we will see in the New Year.”

 

Dubai Duty Free’s Executive Vice Chairman, Colm McLoughlin, who recently appeared on the Bloomberg news channel talking about renegotiating prices with suppliers, told TRBusiness that the demonetisation move was a complete shock.

 

“The recent demonetisation shock in India was completely unexpected and a negative for economic growth and consumer confidence in India, and that will impact the propensity of Indian passengers to spend when they travel at least in the first half of 2017.The Indian sub-continent is around 21% of our business.”

 

However, both Dubai Duty Free and Bangalore Airport are both encouraged by still-growing passenger numbers in India and Dubai.

 

For more comments from Colm McLoughlin and Sang-Joon Ahn on trading conditions in the Middle East and India read the Global Industry Survey inside the January issue of the TRBusiness magazine.