RBI data reveals that the currency amount with the public stood at a record high of Rs 28.30 lakh crore for the fortnight ending October 8, 2021.
It has been five years since the government announced demonetisation on November 8, 2016, but it doesn't seem to have yielded the results expected from it. Reserve Bank of India (RBI) data reveals that the currency amount with the public stood at a record high of Rs 28.30 lakh crore for the fortnight ending October 8, 2021.
This is up 57.48% or Rs 10.33 lakh crore from a level of Rs 17.97 lakh crore on November 4, 2016. Cash with the public has shot up 211% from Rs 9.11 lakh crore, recorded on November 25, 2016.
During demonetisation, the government withdrew the old currency notes of Rs 500 and Rs 1,000 notes in November 2016. It also announced the issuance of new Rs 500 and Rs 2,000 banknotes in exchange for the demonetised banknotes.
RBI data revealed that for the fortnight ended October 23, 2020, the currency with the public rose by Rs 15,582 crore ahead of the Diwali festival. It rose by 8.5% or Rs 2.21 lakh crore, on a year-on-year basis. After the demonetisation, currency with the public, which stood at Rs 17.97 lakh crore on November 4, 2016, declined to Rs 7.8 lakh crore in January 2017.
Despite the RBI and government's best efforts to push for digitisation of payments and discourage cash transactions, cash in the system has been steadily rising.
Possible reasons for rising cash with public
One of the primary reasons is the stringent lockdown announced by the government during the COVID-19 pandemic in 2020.
People began keeping cash with them to meet their grocery and other essential needs mostly catered by neighbourhood grocery stores.
Moreover, cash remains a major mode of transaction with about 15 crore people in the country not having a bank account.
During the festival season also the cash demand remains high as a large number of merchants still depend on cash payments.
How does RBI calculate this data?
The data on currency with the public is arrived at after deducting cash with the banks from total currency in circulation (CIC).
CIC refers to cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
RBI suggests that there is little or no correlation between CIC and digital payment penetrations and that CIC will grow in line with nominal GDP.
The rise in currency in circulation (CIC) in absolute numbers is not the reflection of reality.
What needs to be taken into account is the currency to GDP ratio, which had come down after demonetisation.
The cash in circulation (CIC) to GDP ratio has been 10-12% till about FY20.
Post the COVID-19 pandemic and due to the growth of cash in the ecosystem, CIC to GDP is expected to inch up to 14% by FY25.
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