Currency demonetization hits India’s mobile phone sales

Some mobile makers have stopped or cut down production

India’s decision to remove certain currency notes out of circulation has hurt mobile phone sales, as many people in the country still prefer to use cash or do not have access to payment cards and digital payment options.

Some companies have announced plans to cut down on production to clear inventory. Lava International, one of the larger players in the Indian market, said Monday it has halted the production of mobile phones for the next 10 days. The staff at the manufacturing units have been sent on leave for this period, company spokeswoman Aarti Deepak Taneja wrote in an email.

"We are waiting and watching and will plan our next course of action based on how the situation improves or deteriorates," she added.

Contract manufacturer Foxconn is said to have asked nearly a fourth of its 8,000 factory workers in India to go on paid leave for two weeks, Gadgets Now, reported Monday. Indian phone vendors like Intex and Karbonn are also said to have cut down production, according to the report. Foxconn, Intex and Karbonn did not immediately comment.

The Indian government in a bid to crack down on illegally held currency has demonetized 500 (US$7.4) and 1000 rupee notes, which were to be replaced by new notes. But the transition has not been smooth and the delay in getting new currency notes has meant that people are often short of cash to buy even necessities such as food.

A large number of low-end smartphones and feature phones, which are bought by the urban and rural poor, are paid for in cash as these buyers do not have payment cards and receive wages in cash, said Vishal Tripathi, research director at Gartner. People are prioritizing purchases and phones do not feature high in their list, he added.

Even when ordering phones online, many people do not use payment cards but instead prefer to use a cash-on-delivery option offered by retailers such as Flipkart and Amazon in India.

The decision by Foxconn and the mobile vendors seems to be in line with forecasts of a declining phone market in the fourth quarter by IDC. Pointing out that cash is a dominant mode of transaction in the device market, IDC said that the recall of high-value currency which accounts for more than two-thirds of the cash supply “will lead to immediate but temporary contraction in the devices market in Q4 2016.”

The Indian government is meanwhile pushing digital payments in the unorganized sector by offering users and vendors incentives such as discounts on purchases of petrol and railway tickets. The government’s rationale is that digital payments will further help curb corruption.

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