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Withdrawal of Rs 2000 notes is win for real estate, gold, consumer durables

Currency in circulation has declined less when compared to Rs 2000 notes deposits in banks

A man counting Rs 2,000 notes. Photo: Shutterstock

A man counting Rs 2,000 notes. Photo: Shutterstock

Sunainaa Chadha NEW DELHI
The withdrawal of Rs 2000 notes has seen throngs of customers flocking to malls, jewellery stores, petrol pumps, while real estate experts have seen a spurt in land deals and secondary market apartment sales. 

 On 19 May 2023, RBI decided to withdraw the Rs 2000 denomination banknotes from circulation. In value term, the share of 2000 denomination notes (Rs 3.62 lakh crore) was at 10.8% as on March 2023. As per RBI, around 1.8 trillion of Rs 2000-rupee notes have come back to the system. Of this, around 85% /Rs 1.5 trillion has come as deposits and the rest are exchanged for other smaller denominations. A calculation by SBI Ecowrap shows that the seasonally adjusted decline in currency in circulation during the same period is only around Rs 90,000 crore.

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This means that currency in circulation has declined less when compared to Rs 2000 notes deposits in banks (85% of Rs 1.8 lakh crore Rs 1.5 lakh crore). It has declined from Rs 34.78 lakh crore as on 19 May 2023 to Rs 34.08 lakh crore as on 9 2023, a decline of only around Rs 70,000 crore.

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Had the entire Rs 1.5 lakh crore/ 85% of Rs 1.8 lakh crore were deposited and not exchanged, the CIC should have declined even more implying that this could result in not only a bank deposit boost but also a boost for repayment of loans and consumption.

"Ideally, the lower is the decline in currency in circulation, compared to Rs 2000 notes returning, it implies the residual gap is being exchanged / spent ….decline in currency in circulation much lower than Rs 2000 notes deposited in bank accounts," said Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser State Bank of India.


"As per our estimate consumption demand may be frontloaded by Rs 55,000 crore. With the bank note remaining a legal tender, unlike demonetisation, consumption could see a boost. Though, RBI asked customers to deposit or exchange the Rs 2,000 notes, but it is expected that high-value amounts could move to high-value spends such as gold/jewellery, high-end consumer durables like AC, mobile phones etc, and real estate," the SBI report said.

Petrol pumps: Cash transactions have sharply risen at petrol pumps and cash-paying customers are using Rs 2,000 notes. The All-India Petroleum Dealers Association (AIPDA) has said that the digital payments, which used to be 40% of daily sales at pumps, have dropped to 10% while cash sales have increased dramatically.

• Cash on delivery: People have also started ordering items online with the cash-on-delivery option. It is reported that nearly 75% of Zomato’s users opting for cash-on-delivery have been paying with Rs 2,000 notes. Ecommerce, food and online grocery segments are likely to witness an increase in customers opting for cash on delivery.

• Temples: Expected to increase in donations through Rs 2000 notes in temples and other religious institutions.

• Sundry purchases: Such as consumer durables, boutique furniture, etc

Gold jewelry sales rose by 10-20% when RBI announced the withdrawal of the Rs 2000 notes while people stepped up  purchases of daily essentials, and even premium branded goods.
"In the primary housing market (apartment sales), there would be minimal impact of the Rs 2,000 note withdrawal. This is largely because maximum new launches in the recent past years have been by branded developers who prefer their cash registers clean and transparent. Use of cash transactions or black money on the whole had reduced in the primary market since DeMo in 2016. This move is, in fact, a clear indicator that the government wants to further tighten the noose on unaccounted money. It will bring more transparency to the resale market. There is a small possibility that we may see some increase in land deals involving this denomination," said Prashant Thakur, Sr. Director & Head – Research, ANAROCK Group.

SBI believes that the return of notes will not impact liquidity much since the amount deposited with the banks would be withdrawn in smaller denominations later. However,  some amount would also come in loan accounts. "Loans create client deposits and balances as every loan given out by any bank lands up in a client banking account within the banking system," noted the report.

On credit front, 30% of deposits (or Rs 92,000 crore) might go for loan payment (in CC/OD and in term loan accounts also), showed the SBI calculation.

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"Considering the MPC of this Rs 55,000 crore at 0.7, we believe that the Private Final Consumption Expenditure (PFCE) might increase by Rs 1.83 lakh crore through the multiplier effect. Considering that ratio of PFCE to GDP at constant prices is around 58 per cent, we may expect Q1 FY24 GDP growth at 8.1 per cent with an upward bias due to the impact of this Rs 2,000 note withdrawal event. This reinforces our projection that FY24 GDP could be higher than 6.5 per cent, per the RBI estimate," the report said.

 

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First Published: Jun 19 2023 | 3:11 PM IST

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