Currency with public hit a new high of Rs 26 lakh crore for the first time as resident Indians continued to increase their cash holding amidst the ongoing Covid-19 pandemic, though the pace of increase has declined over the last couple of months.
According to data released by the Reserve Bank of India (RBI), in the fortnight ended September 11, the currency with public increased by Rs 17,891 crore to hit a new high of Rs 26 lakh crore. Since the fortnight ended February 28, 2020, when the currency in circulation was Rs 22.55 lakh crore, it has risen by Rs 3.45 lakh crore to hit Rs 26 lakh crore on September 11, 2020, as per the RBI data.
During demonetisation in 2016, the government said that it wanted to make India a ‘less cash economy’. The cash with public has risen nearly 45 per cent from what it was before demonetisation. While currency with public stood at Rs 17.97 lakh crore as on November 4, 2016, soon after demonetisation, it had declined to Rs 7.8 lakh crore in January 2017.
Funds routed through the digital payment system also increased from Rs 82.46 lakh crore in April to Rs 111.18 lakh crore till July 31, 2020. It is, however, important to note that the sudden rush for cash by the public that started alongside the Covid-19 pandemic and in anticipation of lockdown announcement in March has slowed over the last couple of months as the lockdown restrictions eased and e-commerce has become fully operational.
While the currency with public increased by Rs 3.07 lakh crore between February 28 and June 19, 2020, it rose by only Rs 37,966 crore between June 19, 2020 and September 11, 2020.
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 cash or currency within a country that is physically used to conduct transactions between consumers and businesses.
Economists say that the jump and slowdown in the pace of increase in currency with the public 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 the public started to go down. There is an expectation that cash with the public will start reducing going forward. “The unabated rise in Covid infections across India has also prompted the public to keep cash with them. Payments through debit cards have also increased,” said a senior banker.
“During lockdown, since people were relying on neighbourhood kirana stores and wanted to avoid exposure to virus, they withdrew big amounts of cash at one go to meet their monthly needs and that led to a rise in currency with the public. With supply chain improving and e-commerce becoming operational, the reliance on cash has reduced and gradually currency with the public will come down further,” said DK Pant, chief economist at India Ratings. Cash withdrawals from ATMs, which declined to Rs 1,27,660 crore in April increased to Rs 2,34,119 crore in July, according to the latest RBI data.
Pant added that transactions on NPCI’s Unified Payments Interface have started going up and people are already moving away from cash following the opening up of e-commerce.
On the other hand, the RBI has pumped around Rs 10 lakh crore liquidity into the financial system in order to bail out the economy from the vagaries of Covid-19. This has pushed up the retail inflation to above 6 per cent level, which is higher than the RBI’s target of 4 per cent, forcing the central bank to keep the repo rate unchanged in the previous policy review.
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