While the entire nation is in surprise since last evening by this biggest ever decision taken by PMO in the financial history of India to combat corruption, this move has no doubt cheered many like never before. Though, day-to-day transaction has taken a short term halt due to this, for the small industries and working class, someone who transacts with cash on a daily basis, this is being considered as the dark night before the beautiful dawn for a country like India.
Why 500 and 1000 are banned?
In simpler words higher value notes in the denomination of 500 and 1000 are generally involved in black money and corruption. In his address to the country, Prime Minister Mr. Modi quoted that these high-denomination notes were generally used to support financial corruptions and terrorism. The Financial Action Task Force, a global entity which looks into the illicit use of the international financial structure, says that these high value currencies were being used in people and drug trafficking, racketeering and money laundering. In India the majority of Government fund comprises of Rs 500 and Rs 1000 currencies. A Centre for Media Studies showed in a report that around Rs 30,000 crore was allotted in the 2014 general election, while source spent by officials was mere Rs 7,000-Rs 8,000 crore.
How will it impact real estate sector?
“This major move by PMO will not at all affect the primary developers and the larger organised real estate companies. It is a mortgage driven business when it comes to primary real estate. In a transaction of 30/40 lacs generally, 90% of the home buyers take a housing loan to buy their homes. In such a scenario it won’t affect the real estate sector which is considered as a capital driven industry” says Mr. Manoj Gaur, MD, Gaursons Group.
Apart from India who else is in the league?
The idea of demonetization is definitely not new or unique: A number of international bodies and educational institutions who have been adapting this policy for the last half decade to curb corruption, tax-evasion and support of terrorism. Recently, this year in February, Mario Draghi, European Central Bank head has announced that they were considering to abolish the country’s most-valuable bank currency (the 500 euro bill) in order to curb terrorism financing and tax evasion. In the same line, Larry Summers, American Treasury Secretary recommended to demonetise the $100 bill.
Keeping all these in mind, we not just appreciate PMO for this strongest ever decision of the Indian economy but also hope that its execution is even powerful than its conceptualisation.