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3 years after demonetisation cash is still the king!

Vivek Punj     November 8, 2019

Three years after demonetisation currency in public hands has exceeded levels prior to the note ban. Data from Reserve Bank of India shows that currency with public in September quarter this fiscal has increased 166 per cent in comparison to December quarter of financial year 2016-17, when demonetisation was put into effect.

In September quarter of financial year 2016-17, currency with public was valued at Rs 16.56 lakh crore. The very next quarter, which saw Rs 500 and Rs 1,000 notes being banned, currency with public nosedived 47 per cent sequentially to 7.85 lakh crore. This was expected as these denominations used to constitute more than 80 per cent of the total currency in circulation.

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However, cash has bounced back to its former stature three years since demonetistion. In 2015-16, currency as percentage of gross domestic product (GDP) was 14 per cent. The next fiscal it dropped to 10.3 per cent, rising once again to 13.4 per cent. In 2018-19, currency with public stood at Rs 20.52 crore, 14.6 per cent of GDP measured at Rs 1.40 lakh crore.

Following the shock of note ban, currency levels took an entire year to stabilise. Three consecutive quarters after demonetisation reported de-growth in currency with public, as per RBI data. Cash with public showed a year-on-year decline of 20.86 per cent, 12.59 per cent and 9.63 per cent in Q4 FY17, Q1 FY18, and Q2 FY18, respectively.

New Rs 500 and Rs 2,000 currency notes came into circulation on November 10, 2016.

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It was only in December quarter of FY18 that currency levels finally stabilised, posting a 105 per cent increase on annual basis to reach Rs 16.16 lakh crore. In the September quarter of the current fiscal, people had currency worth Rs 20.89 lakh crore at their disposal.

On the other hand, public deposits did not see much variation after demonetisation. By the end of December quarter in FY 2016-17, money in public deposits was reported at Rs 12.09 crore. One year later, during December quarter of FY18, the amount increased only to Rs 12.70 lakh crore.

The highest public deposits reported in the three years since demonetisation was in March quarter of last fiscal when it reached Rs 16.58 lakh crore. By the end of quarter ended September 30, 2019, the figure stood at Rs 15.57 lakh crore.

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