The surprise decision to demonetise higher denominated currency notes may not root out corruption completely, but economists agree that a cashless society indeed leaves fewer avenues for corruption by making it difficult or even painful to be corrupt. The said move would also bring sanity in India’s real estate market “where nearly 40% of the ill-gotten wealth gets parked”, says Pai quoting an earlier finance ministry report. The government’s commitment to root out the menace of black money would trigger many positive externalities which the economy would benefit from. “In the medium term, much of the parallel economy is expected to come within the fold of the formal one leading to more tax collections,” says Nirupama Soundararajan, Senior Fellow with Pahle India Foundation, a not-for-profit policy think tank.
The government’s commitment to root out the menace of black money would trigger many positive externalities which the economy would benefit from.
Industry watchers foresee property prices coming down by up to 30%, especially in premium housing markets that are currently struggling with high volumes of unsold inventories. Delhi-NCR is one such luxury market which is perceived to be over-valued due to the black money component built cleverly into its price. Many developers in such markets are expected to default on the money given to them in cash. But the expected transparency in the system is going to attract large quantum of institutional capital (by FIIs & private equity players) into the sector.
However, the transitioning period is not going to be less painful. Control on money withdrawal would contract the overall demand in the economy. Traders complain that as a consequence of discontinuation of Rs 500 and Rs 1,000 notes, the commercial markets wore a gloomy and deserted look. “We have prayed to the government to allow retail traders to accept high denomination currency, with a cap that maximum one high denomination note per consumer is accepted against a genuine bill,” feels the Confederation of All India Traders.