Unlocking the potential of India: Exploring the Currency Initiative of Government and Real Estate Investment

Recently the government of India has declared the discontinuation of 2000 rupees notes. This crucial move has been aimed to promote financial transparency and curb unaccounted wealth. Such a major step accompanies the life-change demonetisation period during which the sector of real estate saw a huge surge in investments. People also enjoyed great benefits. Today standing at the edge of a new era, once again the real estate market has emerged as an attractive avenue for all those investors who are looking for stability and long-term growth.

Impact on economic growth

Rs. 3.62 lakh crore is the present value of 2000 rupees notes that are in circulation. It is almost 10.8% of the currency that is in circulation. The withdrawal thus is not going to create any huge disruption because:

• Smaller denomination notes are available in enough quantity
• In the last 6-7 years, the digital transaction and e-commerce scope has significantly expanded.

Impact on banks

The call of the government of depositing or exchanging the notes for all smaller denominations by 30th September will lead to an increase in bank deposits. Also since every 2000 rupee notes will be coming back into the system of banking, it may see a decrease in circulation of cash. It in turn may aid in improving liquidity in this system. It also comes at a time when the growth of deposits is lagging behind the growth of bank credit. 

Impact on bond markets

Enhanced liquidity in the banking system along with deposit inflow in the banks may cause a fall in the short-term rate of interest. This is because these funds are getting invested in government securities in the shorter term.

Pros of this initiative

• The real estate market of India has been full of a wide range of opportunities. It let people build wealth, secure futures and create lasting value assets. The decision of the government to discontinue the use of 2000 rupee notes aims at curbing unaccounted money’s circulation. It also promotes legal compliance and digitisation in the sector. Such a proactive approach will set the platform for a renewed age of transparency. It will enhance the confidence of investors and make sure of a highly sustainable growth course.
• If you look back at the period of demonetisation, we can hugely appreciate the extreme prospect that lies within the market of real estate during this time of change. With the implementation of demonetisation, this sector saw a noteworthy upward movement as people started safeguarding all their savings and diversifying their investments. Then, the temporary crunch of cash forced a lot of property transactions to get shifted toward the formal system of banking. It resulted in a highly transparent and accountable environment. Such a shift created increased confidence and trust among all investors.
• One of the main reasons behind this currency initiative by the government is to lower black money circulation. It also aims at promoting a cashless economy. With the elimination of notes of large denominations, they are aiming to discourage illegal activities and guarantee greater financial transaction transparency. Thus, the real estate market popular for its historical association with some unaccounted wealth is going through a major transformation. Due to this shift, there is a great opportunity for not only seasoned but also first-time investors to enter this market with a renewed sense of integrity and trust.
• At the time of demonetisation, several people who invested in real estate greatly benefited from their sharp decision-making. With the market regaining its momentum and price steadily rising, all the early investors came across a substantial appreciation in the property's value. Such a growth along with the huge demand for high-class commercial and housing space, made real estate an enticing avenue of investment during that time. Today with the unfolding of the new currency initiative of the government, everyone is anticipating the same type of prospect for huge returns in this market.

Cons of this initiative

• Withdrawal of a certain currency denomination such as a 2000 rupee note, can create temporary economic disruption. People will require exchanging or deposit these notes. It can cause long queues at ATMs and banks. It will affect everyday transactions and inconvenience people.
• In economies where transaction involving cash is prevalent, the discontinuation of this high denomination note will affect sectors like small business, retail, and informal economy. It will take time for such sectors to get adjusted to all changes and adopt some alternative method of payment.
• Such large denominations notes are often associated with illicit activities because of their ease of transport along with concealment. But it is vital to understand that if you withdraw a specific note alone it may not eradicate illegal activities or the black market. This is because alternative methods to conduct any illicit transaction may emerge.
• If there is no proper plan for the withdrawal or if there is not sufficient lower denomination note available, it can create a temporary shortage of cash in the economy. It can be inconvenient for people who depend hugely on cash for their everyday transactions.

How online transactions have increased in 30 days?

This initiative by the government could mean an additional push to online transactions or any cashless economy. The volume of online transactions such as UPI has increased a lot from 0.45 crore in January 2017 to 804 crore in January 2023. Its value also increased to INR 12.98 lakh crore from INR 1700 crore during this time.

Rise of the market and the condition of real estate

• The sudden declaration of 2000 rupees currency note withdrawal by RBI created a unique issue for real estate developers across India. While they are experiencing a surge in sale queries for cash buyers of residential and commercial properties, most are confused as to whether grab this opportunity or pass it. As per many realtors, since the note withdrawal declaration of RBI, they have been witnessing sale query surges from prospective customers who wish to buy properties against cash. This renewed property purchase rush has placed most of the real estate players in a confusing situation. They are not sure about going ahead with these deals or adhering to their stated practices. Over the past few years measures such as demonetisation and Real Estate Act introduction have lowered the cash transactions in dealings of property, and it has almost failed to eliminate the same. 
• The main challenge is once any developer accepts a large amount of cash in 2000 rupees currency note, how it will channelise the same without getting flagged. According to industry estimates, cash dealings in transactions of real estate keep on forming almost 35% of the property value in significant markets, in comparison to almost 45-50% one decade ago. Even after measures taken by the government, developers and homebuyers prefer to deal with one part of the property price in cash. It aids them lower fees of registration payable against the property, where the price of the market is very high than the circle rate.  
• But as per industry experts, the discontinuation of 2000 rupees notes is a timely and expected move towards prudent management of currency within the domain of maintaining financial and banking discipline. These measures will further be lowering the probable component of cash in transactions of high-value real estate. 
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Bottom line

The exchange limit is set at INR 20,000 each day. But larger sums can also be deposited. But many may not prefer depositing big amounts until they receive income tax department queries. The notes exchange may create approx. 10 crore extra transactions in the banks. Several people will need to visit the banks many times. There may be an increase in corruption in such a process as businesses having considerable cash dealing may be substantial notes for a fee.