The biggest argument given by the government in favour of demonetisation was that it would make India a “less-cash” economy, but the RBI’s provisional data on gross financial savings for 2017-18 presents a different picture. The data shows that a year after demonetisation, the percentage of savings in currency spiked to 2.8 per cent of the gross national disposable income (GNDI) in 2017-18 — the highest in at least seven years.
According to the RBI data, financial savings in currency stood at 1 per cent of the GNDI in FY ‘15 and 1.4 per cent in FY ‘16. In FY ‘17, the year of demonetisation, currency savings fell to -2 per cent of the GNDI, as much of the currency moved into banks as deposits. But it rose to 2.8 per cent of the GNDI in FY ‘18, the year after demonetisation.
GNDI is the income available to the nation for final consumption and gross saving.
“As per the Bank’s preliminary estimates, net financial assets of the household sector increased to 7.1 per cent of GNDI in 2017-18 on account of an increase in household assets in the form of currency, despite an increase in household liabilities,” the RBI said in its annual report.
Besides a jump in gross savings in currency, even the currency with the public is much more than pre-demonetisation levels. While currency with the public stood at Rs 17.01 lakh crore as on October 28, 2016, it was Rs 18.46 lakh crore as of August 3, 2018.
While the gross financial savings crossed 11 per cent of the GNDI in 2017-18 — the first time in the last seven years — data shows that bank deposits fell sharply to 2.9 per cent in 2017-18, even as the share of savings in shares and debentures grew three-fold from 0.3 per cent of GNDI in 2015-16 to 0.9 per cent in 2017-18.
Experts say that savings in the form of bank deposits have declined in line with the drop in interest offered over the last couple of years (except in 2016-17, the demonetisation year), and the share of savings in equity markets has been on the rise on account of strong performance of equity markets over the last four years.
Since the NDA government came to power in May 2014, the benchmark Sensex at the Bombay Stock Exchange has risen by 57 per cent. In line with the rise in markets, the net inflow into equity mutual funds between June 2014 and July 2018 amounted to a high of Rs 387,305 crore. This strong inflow into equity schemes of mutual funds has been on account of rise in equity markets as well as underperformance of other asset classes such as gold, real estate, and low interest offering on fixed deposits.