Four years after the demonetization move was announced, not much has changed in terms of cash available in the Indian system. On the fortnight ending October 23, 2020, notes worth a staggering Rs. 26.19 lakh crore remained with the public, despite the government pushing for digital transactions.
On November 4, 2016, four days before the move, Rs. 17.97 lakh crore were available with citizens.
After Prime Minister Narendra Modi announced on November 8, 2016, that the existing Rs. 500 and Rs. 1,000 notes would be rendered useless, the move's impact was seen almost instantly.
In January 2017, the cash in the system was Rs. 7.8 lakh crore.
Notably, Reserve Bank of India calculates currency with the public after deducting cash with banks from total currency in circulation.
However, in the following years, cash in the system rose steadily.
From January 3, 2020, to October 23, 2020, the amount of currency with the public went from Rs. 21.79 lakh crore to Rs. 26.19 lakh crore.
This was mostly driven by a race for cash between March and May when the government imposed restrictions to check the spread of coronavirus.
While the figures show Indians have still not ditched the traditional mode of payments, a senior banker said it doesn't reflect reality.
"What needs to be taken into account is the currency to GDP ratio, which had come down after demonetization. But this would have gone up of late with the decline in the growth," the person told IE.
Separately, a study by RBI found that while digital transactions have increased, currency in circulation to GDP ratio has also simultaneously swelled, falling in line with the "overall economic growth."
"An increase in digital payments to GDP ratio over a period of time does not seem to automatically imply a fall in the currency to GDP ratio of the country," said RBI.
On a related note, the National Payments Corporation of India (NPCI) confirmed on November 1, that Unified Payments Interface (UPI) transactions set a new record last month.
NPCI, which manages UPI, said that 2.07 billion transactions, worth Rs. 3.86 lakh crore, were recorded. This means a jump of 15% from September. From August to September, a 12% spike was reported.
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