Economy

Published: June 20, 2023
Updated: June 20, 2023

"Withdrawal of Rs 2000 Notes Boosts Real Estate, Gold, and Consumer Durables; Consumers and Industries React"

The recent withdrawal of Rs 2000 notes from circulation has sparked a flurry of activity in various sectors of the economy. From increased sales in real estate, gold, and consumer durables to a surge in land deals and secondary market apartment sales, the impact of this decision is being felt across the country.

Impact on Currency in Circulation:

The withdrawal of Rs 2000 notes has resulted in a decline in the overall currency in circulation, although not as significant as the deposits of these notes in banks. While around 1.8 trillion of the Rs 2000-rupee notes have returned to the system, with 85% of them being deposited, the decline in currency in circulation is only around Rs 90,000 crore. This difference suggests that a significant portion of the withdrawn notes is being exchanged or spent.

Boost for Consumption and Repayment:

The lower decline in currency in circulation compared to the deposits of Rs 2000 notes indicates a potential boost for consumption and loan repayments. If the entire 85% of deposited notes were not exchanged and remained as deposits, the decline in currency in circulation would have been even more pronounced. This suggests that the remaining gap is likely being spent or used for loan repayments, leading to increased consumption and a potential boost for the economy.

Shift in Spending Patterns:

With the Rs 2000 notes still being legal tender, unlike the demonetization exercise in the past, consumers are expected to allocate high-value amounts to various sectors. It is anticipated that spending on high-value items such as gold, jewellery, high-end consumer durables like air conditioners and mobile phones, and even real estate might see an increase. This shift in spending patterns could further stimulate these industries and contribute to economic growth.

Industry Reactions:

Several sectors have already witnessed notable changes. Petrol pumps have seen a sharp rise in cash transactions, with customers using Rs 2000 notes for payments. Digital payments at pumps have decreased, while cash sales have increased dramatically. Additionally, the cash-on-delivery option for online purchases has seen a surge, with a significant number of customers using Rs 2000 notes for payment. The segments of e- commerce, food, and online grocery delivery are likely to experience a rise in cash-on- delivery transactions. Temples and religious institutions are also expected to witness an increase in donations made with Rs 2000 notes. Furthermore, sales of gold jewellery have seen a noticeable rise, along with increased purchases of daily essentials and premium branded goods.

Real Estate Market:

In the primary housing market, the withdrawal of Rs 2000 notes is expected to have minimal impact. Branded developers, who prioritise transparency and clean transactions, have dominated new launches in recent years, reducing the use of cash and black money. However, the withdrawal may bring further transparency to the resale market. There could be a slight increase in land deals involving Rs 2000 notes, although the impact on apartment sales in the primary market is anticipated to be limited.

The withdrawal of Rs 2000 notes has led to a series of developments in various sectors of the economy. With a decline in currency in circulation, the remaining notes are being exchanged, spent, or used for loan repayments. The real estate, gold, and consumer durables industries have seen a significant boost, while petrol pumps, online retailers, and religious institutions have experienced changes in customer behaviour. Although the impact on liquidity is expected to be manageable, the overall effect on the economy is predicted to be positive, potentially leading to increased consumption and GDP growth in the coming months.