On 8 November, 2016, exactly a year back, the Prime Minister of India, Shri. Narendra Modi had called for demonetisation drive, which banned the use of Rs. 1,000 and Rs. 500 notes. The move affected the economy of the country in many ways, and various sectors such as real estate, lending, investments etc. At one end, where the currency ban posed certain challenges for people, personal finance for commoners saw significant changes in terms of daily cash needs, buying investments, repaying loans and more.
Let us take a look at how personal finance and money of citizens was affected in the last one year following the demonetisation.
- Digital India Programme Got a New Boost
After demonetization, handling of tender notes saw a setback. The government tried to encourage digital transactions by offering incentives to those using digital platforms for money transactions. Charges related to online banking and payment transfer online were also reduced initially. Retailers introduced several discounts on digital transactions.
Some digital payment applications such as Paytm found a new face for itself. Few of the digital payment applications were also rolled out by companies and banks. To keep up the spirit of going digital, the fresh season of ‘Kaun Banega Crorepati’ in 2017 also saw funds won by contestants, being transferred digitally to their bank accounts.
Even though the dream of going ‘cash-less’ brought out some hardships for the people, today many sectors stress on managing monetary dealings digitally. For others, digital transactions helped them track expenses and manage money in a better way.
- Lowered Interest Rates on Loans
Post demonetisation, interest rate on loans fell by a great percentage. Interest rate on various loan products came down in the last one year, due to which availability of loans became simpler for many. For existing loan borrowers, repayment of loan became a quicker affair, and the EMI burden was also reduced, even though the tenure remained unchanged.
As many people were cash-strapped, direct lenders such as loanbaba.com also helped people with small cash loan facility, wherein people could borrow an amount of Rs. 10,000 to Rs. 50,000 the same day. People can still use the service of instant cash loan at loanbaba for meeting their financial needs.
- Accountability in the Realty Sector
For real estate market, demonetization meant a boon. As property prices were unrealistically high for certain regions, demonetisation reduced the involvement of black money drastically. Because of the currency ban and digital push for money transactions, the realty prices started to normalize as per the demand in the market.
We also saw government enforced Beenami Transaction Act and RERA Act, which boosted the trust of buyers once again into the real estate sector.
- Interest Rate on Fixed Deposits
While demonetisation spelled good news for many sectors, for investments in fixed deposit (FD), the scenario took an about turn. Earlier the interest earned on fixed deposits was about 8% per annum, but after currency ban, the same fell to 6% to 6.5%. Thus, FD schemes are now relatively unattractive as compared to Mutual Fund debt scheme and Public Provident Fund.
- Increase in Mutual Fund Investments
More number of people began filing income tax later to demonetisation. To save tax under Section 80 (C), people started to opt for Mutual Fund ELSS schemes. These investments at the time seemed to give better returns than some other investment tools. As gold prices were affected and lowered FD rates made these two investments a bit less attractive, many investors chose to invest in equity related investments and Mutual Fund instead.
Apart from the above-mentioned impacts in personal finance field, demonetisation had many other effects, which meant differently for each other. In mid of 2017 the implementation of GST (Goods and Services Tax), also transformed the economy of India in many ways. The effects of demonetisation can be still felt, and with passing time, we will get to know how the initiated reforms really affect the economy and people at large.