Demonetisation Will Work Only If Implemented Well

Updated: The government has passed an ordinance under which Rs 5,000 fine will be imposed on anyone who is transacting in the old currency. Further, after March 31, 2017, any person who is found in possession of more than 10 old notes will face a jail term of up to 4 years.

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Demonetisation has split opinion among financial experts as well as political observers. As the queues outside banks and ATMs get longer, the common man too is beginning to question the efficiency with which a move of such great implications has been implemented. However, business leaders and industry honchos have welcomed the move. 

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“There is no debate about the fact that this decision will positively affect the overall economy in the long run and on similar terms the real estate sector as well. With the real estate sector being very much driven by customer sentiments, the market will keep performing well because of the end users flooding the market. Overall, it is a very welcome move as far as the sector is concerned and this will help eradicate the parallel economy which had become quite dominant over the period of past decade or so”, says Deepak Kapoor, President CREDAI-Western U.P.

However, the key to the success of demonetisation lies in its implementation. “It is a great move and quite noble in intentions but it will work only if implemented well.” says Dr. PR Swarup, Director General, Construction Industry Development Council (CIDC).

Real estate sector is often the largest receiver of unaccounted money or 'black money'. However, it is wrong to believe that all developers are on the look out for the easy buck behind the tax sleuths back.

Explaining further, Swarup says, “ To get hold of the many clearances and approvals, sometimes the developers have to grease the palms of many municipal corporation authorities, officers and sometimes the chain goes up to a political master. Unless this correction is made from all sides, expecting the country or the real estate sector to be ridden of black money is not rational. In principle, demonetization is positive but its implementation has been cumbersome. Cutting an arm of the octopus is not enough, all the eight need to be cut to bring about correction from every side.”

To think about it, buyers are usually at the receiving end of the entire process. Apart from construction costs, overhead expenses like bribes etc also tend to push up the price tag of a property. This is often a deterrent for the middle class investor

The slump in the sector made the government approve of many systematic corrections such as the Real Estate Act 2016 and even the Goods and Services Tax Bill. While one would make sure that a state level regulatory body is in place to monitor transactions, the other ensures that there aren't multiple taxes levied on commodities thereby raising the cost. However, it will take some time for these reforms to take effect. So far, rules have been notified for the Union territories only. Uttar Pradesh is one of the first states to have published its rules. Others like Maharashtra, Andhra Pradesh, Karnataka and Tamil Nadu are yet to notify their rules. Post these formalities, an authority would be set up. The ministry has set 30 April, 2017 as the deadline for all states to establish the regulatory authority and an Apellate Tribunal. This means for lakhs of aggrieved buyers, any relief is still six months away.

At such a juncture, the success of demonetization will depend on how smoothly it is executed and how quickly the industry over comes the cash bump. With the sudden standstill that small time traders and daily wage labourers have flung themselves into, it is a cause of concern as experts say that about 1 per cent of the GDP has already been lost in the last few days. Long term success would require backing by an equally vigilant and transparent RERA as far as real estate is concerned.