Demonetisation and its impact – What it means for you?

By Published On: November 9th, 2016Categories: Articles2.8 min read
demonetisation and its impact

Demonetisation and its impact – What it means for you? BHIVE | In an extraordinary move, which took the nation by surprise, Prime Minister Modi demonetised INR 500 and INR 1000 currency notes. This move widely acknowledged as the surgical strike on black money opens up both opportunity and chaos for the economy. I am all braced up to be part of long queues outside ATM’s and banks to withdraw money for daily use.

Profound impact on real estate

Real estate will definitely see a correction in prices as it being one of the largest avenues where investors deployed their cash. Hopefully, real estate, which for long is known for the menace of black money, will see improved transparency. This will benefit consumers and also builders who hadn’t had the advantage of black money. Sector might see a correction in excess of 25%. Same is the case with land prices as well.  The land transaction involves a lot of cash component sometimes up to 30% of transaction value. So if you are looking to buy a home, this is the time. In my opinion, demonetisation along with real estate regulator is the biggest reform that can help clean up real estate sector.

Long term gains of pulling back the big notes

In short term, we can also expect a lot of black money to come back in the mainstream economy. This means more tax and penalty collection from defaulters and argues well for the economy. It is more like involuntary disclosure on income. This move is also aimed at tackling counterfeit currency problem and dry up resources to an organization, using fake currency to fund anti-national/terrorist activities.

Short term pain for small scale industries

Though it also means that it will be a chaotic situation for commoners in short term.  Almost 40% of the economy is driven by small and medium-sized enterprises and are largely run on cash transactions. These enterprises will face the negative impact which might have a knock-off effect on the economy. Moreover, this move will also cause inconvenience to businesses and people in rural areas. Unfortunately, the banking system has not reached yet, along with working population like maids, drivers, helpers etc.

POS terminal usage will surge

Demand for gold and foreign currency will go up, as people will find them safe to park the money rather than keeping the hard cash. The popularity of mobile wallets and cashless transactions is going to go up. E-commerce companies will find COD (cash on delivery) transactions go down which will impact their business.  

Just a beginning of the end of black money era in India

Will this step curb black money? – is difficult to ascertain at this moment. In near to short-term hoarding of cash is going to get reduced. But cash dealings and transactions will continue and I suspect things will be back to usual in long to medium term. My reservation comes from the outcome of the previous demonetization in 1978. On a positive note, it is surely going to reduce the role of money as an influencing factor in upcoming assembly elections. Provides a feel-good factor to an honest taxpayer and builds an atmosphere of optimism in the country.

Overall, I see it as a bold and positive move in right direction with sincerity to curb black money and weed out counterfeit currency.

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