The currency with the public continues to rise five years after the government announced demonetisation on November 8, 2016.
With cash remaining the preferred mode of payment, currency with the public stood at a record high of Rs 28.30 lakh crore for the fortnight ended October 8, 2021 – 57.48 per cent or Rs 10.33 lakh crore from the level of Rs 17.97 lakh crore. on November 4, 2016. Cash with the public has increased by 211 per cent from Rs 9.11 lakh crore recorded on November 25, 2016.
For the fortnight ended October 23, 2020, the currency held by the public before the Diwali festival increased by Rs 15,582 crore, according to the Reserve Bank of India (RBI) data. It grew by 8.5 per cent or Rs 2.21 lakh crore on a year-on-year basis.
After the withdrawal of Rs 500 and Rs 1,000 notes in November 2016, the currency with the public, which stood at Rs 17.97 lakh crore on 4 November 2016, declined to Rs 7.8 lakh crore in January 2017.
Cash in the system continues to grow even as the government and RBI have insisted on a “less cash society”, digitization of payments and banning the use of cash in various transactions.
The jump was mainly driven by the cash rush by the public in 2020 as the government announced a stringent lockdown to tackle the spread of the COVID pandemic. As countries around the world announced lockdown in February and the Indian government also prepared to announce a lockdown, people started hoarding cash to meet their grocery and other essential needs, mainly was being met by the neighborhood grocery stores.
As per the definition of Reserve Bank of India, currency with the public is calculated after deducting cash from the total currency in circulation (CIC) with banks. CIC refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
The sudden withdrawal of notes in November 2016 shook the economy, with demand plummeting, businesses facing a crisis and gross domestic product (GDP) growth falling to nearly 1.5 per cent. After demonetisation, many small units were badly affected and closed down. It also created a liquidity crunch.
The increase in currency in circulation in absolute numbers is not a reflection of reality. “There is a need to keep in mind the currency-to-GDP ratio, which was reduced after demonetisation,” said a banker.
The cash to GDP ratio has been around 10-12 per cent till FY20. post it though COVID-19 Due to the pandemic and increased liquidity in the ecosystem, the CIC to GDP is expected to grow by 14 per cent by FY25. RBI’s own view of CIC suggests that there is little or no correlation between CIC and digital payment penetration and that CIC will grow in line with nominal GDP.
While digital payments have been gradually increasing in recent years, both in terms of value and volume in both countries, data show that the currency in circulation has grown in proportion to GDP at the same time in line with overall economic growth. , as per a study by RBI. digital payment.
Rajiv Kaul, CEO, CMS Info Systems said that cash continues to be the dominant mode of transaction in India across sectors and income groups. In FY2011, the CMS network moved over Rs 9.15 lakh crore in currency through over 63,000 ATMs that the company fills and over 40,000 retail and enterprise chains, he said.
During the festive season, the demand for cash remains high as a large number of merchants still depend on cash payments for end-to-end transactions. With about 15 crore people not having a bank account, cash remains a major mode of transaction. Furthermore, 90 per cent of e-commerce transactions use cash as a mode of payment in tier four cities, as compared to 50 per cent in tier one cities.
The CMS Cash Index shows a significant increase in the cash requirement in the economy with the onset of the festive season as it has been in the last three years since 2018. The CMS Cash Index has shown a jump of 9-19 per cent in cash in the last three years. , CMS Info said.
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