EFFECTS OF DEMONETISATION ON THE
TRENDS OF REAL ESTATE, GOLD, STOCK
MARKET AND INCOME TAX RETURN
The Govt. of India has declared demonetization of all Rs.500 and Rs.1000 currency of Mahatma Gandhi series on 08th November 2016. The government alleged that these decisions would cut back the dark economy and decrease the use of black money and counterfeit cash to fund illegal activity and terrorism.
As our Indian economy and markets are a cash-driven economy, the sudden declaration of demonetization of currency disturbs the economy and market very badly, and effected its growth for a temporary period of time. The main advantages of demonetization has been
? Helped the government to track the black money, ? Making the Indian economy towards cashless. ? Make people to disclose their income by depositing money in their bank accounts.
On the other hand, there were a large impact on the trends of Real estate, gold, and stock markets.
? EFFECT OF DEMONETIZATION ON THE TREND OF REAL ESTATE MARKET
The Indian real estate sector is accepted globally as the best sector. In India after agriculture, it is considered as the second largest employer and is marked to grow 30 % over the next decade. The real estate sectors are divided mainly into 4 sub sectors- hospitality, housing, retail, and commercial. The construction industry positioned 3rd among the fourteen(14) major sectors in terms of indirect, direct and induced effects in all sectors of the economy. Researchers are expected, within 2020 the Indian real estate market will be touching US$180 billion and housing sector will be contributing approximately 11% to India’s GDP by 2020.
But the sudden declaration of demonetization on Rs.500 and Rs.1000 currency note made a tremendous changes and affected the real estate market, there is no surprise in that, because it has traditionally seen a huge involvement of cash transaction and black money. It made benefits as well as challenges. The sudden effect of demonetization in the real estate sector can be observed.
? ELIMINATION OF UNSECURED CASH TRANSACTION
After the demonetization, there has been a clarity on the purchase and payment system of property. Until recently, most of the properties were shown lesser market value comparing to the actual price. Before the regulation of transaction and unrecorded money, the government faced lot of problems to levy the taxes or almost impossible to get the taxes on them. That was the heaven time for the people who was having unaccounted money to invest in real estate. However, a change towards the cashless transaction made a clear picture in the valuation system because people are not able to buy any property through cash. The prices of the properties which were having tremendous growth, came to stable condition. Moreover the government is able to have an eye on fraud activities, because they have kept a track of extremely large transactions. These all factors boost the consumer’s confidence.
? LOW HOME LOAN INTERESTS DUE TO DEMONETIZATION
The sudden impact or reaction of demonetization was the increase amount of cash deposits into banks. Earlier, banks were encouraged to deposit people’s money into bank, but suddenly the huge deposit makes the banks helpless and they were not able to dispense the cash through different instruments. To encourage giving loan, RBI has taken measure such as decreasing the interest rate on home loans to attract masses towards real estate investment. These steps resulted a huge hike or demand in the Indian real estate market, along with that the lower interest rates helped the property builders for starting their work, which was discontinued due to lack of money. Moreover after demonetization the prices of houses or properties became affordable with less EMI, because of different subsidies and government policies.
? SLOW PURCHASE DUE TO CONTRACTION IN CASH
After demonetization there was a critical unanticipated cash shortage in the economy and liquid cash for the people become dearest. The demonetized money which was collected was around 85% of the total money which was circulated all over India. As people compelled to deposit money into
bank accounts, and cash were flushed out of the system. This made the people to restrict the number of transaction by cash, hence the purchase of property came drastically down. We can see in the major cities the purchase went down to 40%, on the other hand the new projects which was established fell by 11% immediately after the demonetization. But this impact lasted only for a short period of time.
? SLOW DOWN IN CONSTRUCTION WORK
The cash liquidity shortage hit the real estate very badly in all sides, even the supply. Construction firms which was managed by cash until then suddenly found themselves unable to meet their operational expenses like raw materials and wages of workers. Wages are always paid in cash because most of the workers in construction field does not have bank account. There for even the constructors were not able to pay or meet their expenses on time. Also the constructors were hesitate to borrow money, these all results the construction projects came in to a standstill. The main metros such as Mumbai, Delhi and Chennai are the main victims of demonetization.
? LOW RENTAL YIELD
In real estate, yield is the rental income as a percentage of the value of property.as I already mentioned demonetization made a huge impact on the real estate for a short period, so the yield of income from real estate came drastically down.
? EFFECT OF DEMONETIZATION ON THE TREND OF STOCK MARKET
It has been one and half year, now that the Modi government has declared the demonetization of the high value currency of Rs.500 and Rs.1000. this move has shown a huge impact on the Indian stock market. The BSE SENSEX AND NIFTY 50 stock indices went down to 6% after the day of demonetization declaration. According to the report of NSE, the people were panic because of demonetization and they started to sell the shares, so automatically the demand of shares will come down.it made the market to decline very badly. Many of the investors withdrew their money or capital from their share markets. While some of the people were expecting a further fall in the market and they were waiting for the better opportunity to buy shares in lower price level.
Let us have a deep look into the effect of demonetization on different sectors of stock market.
According to the researchers banking was the highest beneficiary of demonetization, because banks were flushed with lots of money. The only thing which foresee was if the bank is not able to use money in proper way such us lending or giving loan, then it would be a failure. The first step to the digital era is demonetization, the government had taken all steps to make cashless
economy.so it must automatically impact positively the operational efficiency of the banks. In future year there will be only digital transaction instead of cash transaction.so there will be good scope for banking sectors. In banking, I personally believe that there is very limited quality banking stocks. To sum up, all the banking stock will not be benefited from the impact of demonetization
Downside of demonetization can we seen clearly on the purchase of two wheelers in the auto mobile industry sector. If u have noticed in towns before pan card wasn’t mandatory all the transactions would mostly take place through cash. The automobile sector had a slow down on the demonetization period. According to the researchers there was a huge decline of 30 to 40% in the sales of two wheelers and 60 to 70% of dip sales in case of four wheelers immediately after demonetization. Before demonetization people knew how to cover up these transaction, in some cases vehicles will be purchased to convert black money to white money.
To conclude, there was huge decline in the auto mobile market due to less cash flow in the economy, but it lasted for only temporary.
FOOD AND BEVERAGES
According to my study, I firmly believe that food and beverage industry are the industries which was mostly impacted by demonetization. Due to the government policy many of the restaurants have temporary closed or they had reduced their working hours. The reason behind is, they are not all accept digital payment and the business was not viable if the share of cash transactions drop significantly.
According to my research I found that the demonetization doesn’t affect the telecom industry. We can see the telecom industry shares doesn’t decline much comparing to other indusrties.in my opinion it’s a positive impact because telecom industry did lot of underground work on digital payments. Now a days all the telecom companies have wallet offerings for digital and online payment.so the demonetization leads people to take up these telecom companies wallets and do all transaction through it.so there are the reasons why telecom sectors have a positive effect of demonetization.
This is the sector mainly driven by cash and hence it has been hit very hardly because of lack of cash flow in the economy. It was hit almost 11.7% since the declaration of demonetization.
? EFFECTS OF GOLD AFTER DEMONETIZATION
Demonetization was implemented all of a sudden by the government of India and it had a huge impact throughout the country. The major industries that are involved in our country include textile, food industry, construction, gold etc. with the implementation of the concept of demonetization these industries had a direct or indirect impact.
However, gold demand has still been recovering with the effect of demonetization. During the initial period of demonetization the business of gold had decreased at the rate of 75%. As time passed by, the demand of gold had gradually picked up and overall demand continues to be less than 25% than the previous year. The various laws that had been passed in India also effected the demand for gold, in short, it discouraged the buying preference of customers towards the gold. Today, as time passed by the demand for gold has also been changing.
THE FLUCTUATING DEMAND OF GOLD:
During the eve of demonetization, it was observed that there was an immediate rush in buying the gold since the buyers wanted to dispose their currency notes. The sellers had also enjoyed this demand for gold and had set up competitive prices for the gold. This demand has suddenly lifted the price of gold in the market. However this did not continue in the future since everyone had a fear that the government would also control the gold holdings and buying in the mere future.
What is happening this time around? :
In the recent time it is observed that the Indians began buying gold. This is because after the implementation of demonetization by the government the people fear this would happen again. Since gold is easy to be stored at it can be converted at any time when needed people prefer gold today over cash.
Also it was observed that the consumer behaviors of purchasing these gold has also changed drastically. Earlier the customers used to prefer the payment through cash but today the payment mode has become digitalized. Even the concept of digital gold has also slowly began in the market.
Today the gold sales seems have stabilized. The government seems to implement new policies and measures to increase the transparency in the market and gold is and will be one of the metal that is preferred by the individuals in any occasions.
The impact of demonetization on gold was found to be temporary but overall the concept of digitalization will affect the way people buy and store the gold.
? EFFECT OF DEMONETIZATION ON THE TREND OF I.T.R (Income tax return)
The major benefit of demonetization is reduced instances of tax avoidance. After the currency become accountable, people are liable to pay tax without any choice. After demonetization there is a 25% increase in payment of tax, it is a huge change. These all are the revenue which is collected by the government. Tax avoidance can turn out to be a good push to the Indian economy. Increased flow of taxes can be used for the public welfare by the government.
Even though it is proved from above data that, due to demonetization our country gone through lot of problems, but still it is also be noted that Indian Economy is known as a resilient economy and this current state of economy shows this fact because except few sectors almost all the sectors have recovered from the demonetization and the impacts are only for a temporary period of time.