New Delhi: The currency in circulation had declined in the first half of this financial year. This being the first time this has happened in H1 in at least 10 years, reported the Business Standard in October 2023 . The currency in circulation on March 31, 2023, was Rs 33.78 trillion. This then fell to Rs 33.01 trillion on September 22 – a difference of about Rs 76,658 crore, as per the Reserve Bank of India.
This was attributed to the announcement of the withdrawal of the Rs 2,000 currency note.
But fresh RBI data – from then October 2023 till January 19, 2024, as per an analysis by Economic Times, suggests a sharp surge in currency usage once again, almost matching the high amounts of currency in circulation in financial years preceding the last year. ‘Currency leakage’ measured through increase in currency usage, has gone up to 1.2 lakh crore. The comparable figure for the previous year, notes the newspaper, which included January 2023, was Rs 1.3 lakh crore.
Analysts are cited as saying that movement toward digital currencies, should force “over the longer term [to] bring currency in circulation lower as a percentage of overall economic activity,” but, Namrata Mittal, chief economist, SBI Mutual Fund is quoted as also saying, “the reality today is that it’s stuck at 12% of GDP.” IDFC First Bank economist Gaura Sengupta, does note a small dip in outstanding currency in circulation, at 11.6% of GDP as of December 2023, versus 12.2% of GDP a year ago.
The five state assembly elections in autumn and the prospect of forthcoming general elections, which raise spending in the economy, as well as the festival season after October and Kharif and Rabi harvests are other possible reasons for why cash continues to remain a favoured means of exchange. The shock of the announcement of the withdrawl of the Rs 2,000 banknotes would also have had time to wear off by this time.
Business Line had reported in May 2023 that “Indians’ propensity to use cash has resulted in the country having the highest currency-GDP ratio, in comparison with other countries.” This, despite the shock to currency usage that demonetisation had delivered in November 2016.