The sudden rush for cash by public — which started alongside the Covid-19 pandemic and anticipation of lockdown announcement in March, and kept on piling each fortnight — witnessed its first fall, in five months, in the fortnight ended July 31. The dip in currency with public came in line with the relaxation in lockdown restrictions and large number of businesses and transactions returning to normalcy.
As per Reserve Bank of India (RBI) data, currency with public rose by Rs 3,24,500 crore between February 28, 2020 (Rs 22.55 lakh crore) and July 17, 2020, and hit an all time high of Rs 25.8 lakh crore on July 17. It fell by Rs 3,982 crore in the fortnight ended July 31, and the currency with public fell to Rs 25.76 lakh crore. It is, however, important to note that the pace of cash accumulation slowed down in June and July, as the Centre relaxed the lockdown restrictions.
While the average monthly rise in currency with public stood at an average of around Rs 95,000 crore in the three months between March, April and May, the pace of accumulation declined to an average of Rs 16,000 crore in June and July.
As per the RBI definition, currency with public is arrived at after deducting cash with banks from total currency in circulation. Currency in circulation refers to the cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
Economists say that the trend is in line with the economy turning into a cash economy during the lockdown phase and then as things gradually started to move towards normalcy, the cash with public started to go down.
“In the initial phase of lockdown, as e-commerce transactions were not permitted and people relied on neighbourhood stores, which operate mostly on cash, people were withdrawing higher amount of cash. Also, since people wanted to avoid exposure to virus, they withdrew big amounts at one go to meet their monthly needs and that led to rise in currency with public. With supply chain improving and e-commerce becoming operational, reliance on cash has reduced and gradually currency with public will come down further,” said DK Pant, chief economist, India Ratings.
He further said that transactions on NPCI’s Unified Payments Interface (UPI) have started going up and people are already moving away from cash following the opening up of e-commerce.
In fact, in May, June and July, the total value of transactions done through UPI amounted to Rs 7,707.6 billion, which was 24 per cent higher than all transactions done through the interbank immediate payment service (IMPS).
The RBI expects that this behaviour is likely to continue as people opt for more precautionary savings. In its July monthly bulletin, it said, “Looking further ahead in 2020-21, the COVID-19 pendemic is also expected to induce behavioural changes such as, increase in internet-based transactions vis-à-vis cash and card-based transactions”.
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