Even as Prime Minister Narendra Modi and RBI Governor Shaktikanta Das urged people to use digital payment tools during the COVID-19 outbreak, the first fortnight of the lockdown seems to have pushed the country more towards a cash-driven economy. The share of money held in the form of currency, both by the public and as cash with banks, has hit the highest level since 2007-08. The increase is being attributed to weak credit-cum-deposit creation by banks in a slowing economy as well as the public’s greater desire to remain liquid amid the lockdown and the looming economic distress. The total currency in circulation (CIC) — the outstanding value of notes and coins issued by the Reserve Bank of India (RBI) — stood at Rs 25.06 lakh crore as on April 17. Not only was this 14.5 per cent higher than a year ago, but also 39.4 per cent more than the Rs 17.97 lakh crore level of November 4, 2016 (just prior to demonetisation) and 2.8 times the Rs 8.98 lakh crore low recorded on January 6, 2017. Banking sources say that as the Prime Minister announced the three-week lockdown on March 24, that curbed operations of e-commerce platforms, there were cash withdrawals as the neighbourhood mom and pop stores turned out to be most reliable for daily grocery needs. Many are withdrawing cash from ATMs and keeping it as reserve for personal needs, bankers said. Restrictions on travel and public gatherings, already imposed in many places before the nationwide lockdown from March 25, appears to have led to people accumulating cash and making more than normal withdrawals from banks/ATMs as a precautionary measure. Sources said even grocery store owners prefer cash saying they need to pay their vendors in cash. “While the retailer is asking for cash to be paid to the distributor, the distributor wants cash to pay to suppliers. At the ground level, it’s mostly a cash economy in the lockdown,” said a banker. Even in March, as COVID concerns grew, cash withdrawals witnessed a sharp surge. Cash with public jumped by Rs 52,541 crore during the fortnight ending March 13, went up by another Rs 33,539 crore in the 14-day period ended March 27 and another Rs 49,554 crore by April 10. In total, cash with public jumped by Rs 1.35 lakh crore since March. Currency with the 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. Cash in the system has been steadily rising even though the government and the RBI pushed for a “less cash society”, digitisation of payments and slapped restrictions on the use of cash on various transactions. RBI data shows that the rise in January and February amounted to Rs 39,436 crore and Rs 36,844 crore respectively. In fact, over the last 12-months, the currency with public has risen by Rs 305694 crore. This makes it an average monthly increase of Rs 25,474 crore.
