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Despite demonetisation, cash remains the king

Digital payments acceptance growing, but…

Five years on, has demonetisation made any difference towards meeting Modi’s objectives?

It has been five years since Prime Minister Narendra Modi the sudden 8 PM announcement demonetising the currency notes of Rs 500 and Rs 1,000. It has been received with shock and showers of praise.

But India moved on and digital transactions have become the order of the day. But has it helped in curbing cash transactions? Here is an industry cross section view:

Ravi B Goyal, Chairman & MD, AGS Transact Technologies Ltd, said demonetisation has encouraged digital acceptance across the country. Post demonetisation, the payment industry has collectively built a strong digital payment infrastructure to accommodate surging transactions.

Quoting NPCI Goyal said, UPI transactions stood at over 7 lakh crore (in value) in October 2021 which is a indicative growing acceptance of digital payments in the country. While the Indian digital payment space has seen extraordinary growth in the last few years, with the volume of transactions increasing at a CAGR of 36%, a report published by RBI in April 2021 observed that cash continues to be the primary mode of transactions and is used predominantly for small value transactions up to Rs 500.

“Additionally, the cash-in-circulation as on October 29 was about Rs. 29 lakh-crore as compared to approx. 18lakh crores in the pre-demonetisation era.  This is an indicator that India as an economy will continue to demonstrate a unique co-existence of cash and digital transactions," he added.

“An important goal of demonetization was to reduce the use of cash in transactions and inspire people to pay using non-cash modes,” said Pritam Chivukula, Co-Founder & Director, Tridhaatu Realty, and Hon. Secretary, CREDAI MCHI

The real estate industry has welcomed this move since it helped the sector to increase the direct tax collections. This has brought a large number of evaders in the tax net. It has indirectly made things more systematic, accountable and transparent, Chivukula said.

Overall, he felt, the move has declined cash transactions, increased the bank deposits and financial savings has seen an uptick too.

Kaushal Agarwal, Chairman, The Guardians Real Estate Advisory, said the sudden and initial impact of demonetization over the economy was severe and real estate was the worst hit sector. Today, however, he feels that it was a much-calculated move by the government to streamline the economy and bring transparency in key sectors. It has helped the sector to consolidate the market, it brought a level playing field for the organised and transparent entities. It has prevented the inflow of black money and nearly wiped-out the unorganised players.

More importantly, Agarwal said, it has paved the path for corporate and listed companies to expand and grow, which in other cases was tilted in favour of local and unorganised players.

Demonetization has also increased the awareness about digital payments and online transactions amongst the home buyers. This has drastically helped the sector to eradicate the age-old menace of illicit transactions and dubious sales, he added.

Himanshu Jain, VP - Sales, Marketing and CRM, Satellite Developers Private Limited (SDPL), said initially the industry thought that demonetization would affect all the major sectors including real estate. But the move has created a positive impact and the real estate industry has done better in the last 5 years, he said.

Demonetization has led to a level playing field in a lot many sectors including real estate. It led to further consolidation in the category, nearly wiping out the non-serious players. It has also led to an increased understanding of digital payments and financial transactions amongst the people of India. Since the announcement, the government has incentivised digital payments and desires to envision a country which survives with limited requirements of cash-based dealings. Demonetization has brought in much needed transparency and helped to double the trust of the investors in the real estate sector, Jain said.

The impact of demonetization is positive impact in the long run on the real estate industry, according to Vedanshu Kedia, Director, Prescon Group.

The move has had an impact on the perception of real estate transactions. All the 3 major objectives of curbing black money, fake notes and most importantly creating a cashless economy have been achieved as India has become one of the largest markets for digital payments, Kedia said.

After demonetization, a large share of the population has gone digital and have adopted cashless transactions. There are many proptech startup’s now that are working on creating platforms that allow homebuyers to experience property and make a block on their inventory by committing an expression of interest. This will definitely enable ease of doing business and bring liquidity to the real estate market, he explained.

Sanya Aeren, Chief Advisor, Marketing & Communications - Berkshire Hathaway HomeServices Orenda India, said the nation faced a massive setback five years ago on due to the demonetization. The impact on the real estate sector was instantly visible. Demonetization brought a lot of chaos and uncertainty in the industry.

Considering the structure of the deals involved, with poor liquidity of cash, delay in project delivery and high number of unsold properties many buyers went off the market and sellers could do little but wait.

As per the Indian Economic Update, a study done in the year 2016, the industry observed an average of 2.36 lakh crore worth of investment in a quarter but because of demonetization there was a significant drop of worth 1.15 lakh crore in the investment in the following quarter.

At the same time, demonetization along with the Benami Transactions Act and RERA (Real Estate Regulation and Development Act 2016) played a crucial role in bringing the much-needed transparency and ethics in the industry, with a shift towards the cashless transactions since people could no longer buy property using cash. Property prices which were skyrocketing earlier stabilized considerably, she said.

With 5 years already passed since demonetization, the Indian real estate market is looking upwards, keeping in mind the 14.5 percent growth in GDP and subsequent increase in the cash flows in the market, Aeren pointed out.

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