Let us recall the lofty intentions behind demonetisation. The primary objective was to flush out black money from the system and move India towards a digital super-highway where cash was no longer king. Attempts were made in some cases, particularly in real estate. And it would have also paved the way for making the gold market more transparent. For decades, many Indians have stashed illegal cash in property and gold. Nevertheless, cash retains its popularity despite the emergence of digital platforms, and for a simple reason – it provides anonymity in financial transactions, unlike digital transactions which leave traces.
immediate effect of demonetisation
economic woes aside, about 99% of demonetized currency – or approximately 15.44 trillion – came back to the banks. Less than 1% remained outside the formal banking system. Two factors may have contributed to the failure of the demonetisation calculation – first, many Indians do not hoard black money in large amounts in cash, preferring to invest it in property and gold. Also, many Indians have found people who did not have black money to convert their deposits into white. Hence, black money was routed into the banking system through various channels, converting it into white money.
Does this mean that demonetisation completely failed in its efforts to curtail the black market? not enough.
Long Term Effects on Real Estate
Demonetisation has been a catalyst in making real estate deals more transparent. As cash deals reduced in the property market after demonetisation, it limited speculative buying and selling, and developers shifted their focus from luxury projects to affordable and mid-range housing. It made the real estate market transparent and more end-user driven.
Property broker Anarock said in November 2021 that cash transactions had reduced in the primary residential market. It added, “Black money (or cash transactions) in the housing market has come down by at least 75-80% since the demonetisation in late 2016.” Bank’s distribution data, feedback from its over 1,500 sales agents and review of registration documents.
Demo has changed the fundamentals of real estate in India, saying that “housing sales are driven by genuine demand and not as a means to launder black money.” This trend has also gained momentum with the introduction of RERA and GST. ,
The impact of demonetisation on the gold market has been less visible. Nevertheless, the government’s emphasis on the digital economy led to the emergence of digital gold after demonetisation, a step towards making the gold market more transparent. A recent survey by consumer data intelligence company Axis My India revealed that awareness about digital gold is on the rise in India – 35% of those surveyed were aware of it while 10% had already invested in it.
why cash is still king
At the time of demonetisation, India had notes of approx. 18 trillion in circulation. As of March 2018, it had touched 19.4 trillion, and is slated to cross this figure by December 2022. 32 trillion. That’s why the cash with the public has increased after demonetisation.
Clearly, cash remains popular despite the emergence of UPI and other digital platforms that ensure seamless transactions. Reason: Cash provides anonymity which digital transactions do not. India – and the world – have long become accustomed to the anonymity of physical cash transactions.
A digital currency – for example the digital rupee – that has all the properties of physical cash would have an immediate edge over other digital money platforms, especially for high-value transactions. Currently, Indians use Paytm, Google Pay, PhonePe and other digital platforms for small value transactions.
RBI has assured that the digital rupee will mimic physical cash including ensuring anonymity. While this may eat into the share of physical cash, especially in larger cities, it may take years for Indians to accept and trust transactions in e-rupee, especially given the promise of anonymity.
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