Synopsis–Experts attributed higher cash storage to various factors: Withdrawal of benefit payouts and subsidies from Jan Dhan accounts, better agriculture output and farm-gate receipts, and even a statistical base effect. To be sure, the economy as a whole is expected to have either contracted or remained unchanged through FY21 after the record first-quarter shrinkage.
At nearly a sixth of the gross domestic product (GDP), currency in circulation is at its highest in a decade, pointing to the likelihood of cash storage in anticipation of medical emergencies, even as much of India is shut down and mobility curbs imposed to prevent the coronavirus from spreading.
Simultaneously, digital modes of payment have also soared manifold since the demonetisation in late 2016 , underscoring the apparent dichotomy in transaction behaviour through the protracted and unprecedented health crisis.
“Unlike digital payments, cash has a dual role. It is a store of value and also enables payments. In times of crisis, cash in circulation has increased across economies as people want to have liquidity and security,” said Anush Raghavan, president of the cash management business at CMS, a cash distribution company. “There has also been a decline in cash velocity due to lockdowns and limited mobility, necessitating an increase in the cash inventory at the aggregate.”
Rs 29.4 lakh crore as of May 7
From 12% of the GDP in FY16, currency usage slumped to 8% in FY17 following demonetisation, and has been gradually rising since.
Currency in circulation rose 17% ( year-on-year) to Rs 28.6 lakh crore by end-March 2021, compared with 14% at the end of the previous fiscal year, the latest Reserve Bank of India (RBI) data showed. Cash in the system further increased to Rs 29.4 lakh crore as of May 7.
Digital transactions, meanwhile, have grown at a CAGR of 66.4% to 40.1 billion transactions in FY20 from 3.1 billion transactions in FY15, as per central bank data. The average daily digital transactions in India in January 2021 were at 142.6 million, up from 8.6 million in 2015.
Experts attributed higher cash storage to various factors: Withdrawal of benefit payouts and subsidies from Jan Dhan accounts, better agriculture output and farm-gate receipts, and even a statistical base effect. To be sure, the economy as a whole is expected to have either contracted or remained unchanged through FY21 after the record first-quarter shrinkage.
Anand Bajaj, chief executive of Paynearby, said that FY21 saw an increased propensity among beneficiaries to withdraw cash from their Jan Dhan bank accounts. “The migrant crisis and distress in the economy prompted rural households to withdraw the cash doles from their bank accounts,” said Bajaj. “One of the reasons for high cash in circulation, especially in the rural economy, could be the increased reliance on DBT schemes for sustenance.”
Paynearby is an Aadhaar-enabled Payment Service (AePS) provider running micro-ATM networks in rural India. Its network saw withdrawals to the tune of Rs 3,000 crore in FY21.
The government last year announced sustenance and subsidy payouts of Rs 1.7 lakh crore to beneficiaries under the Pradhan Mantri Garib Kalyan Yojana (PMGKY) to help them overcome Covid-related economic distress.
The CMS Cash Index has shown that over the past few quarters, semi-urban and rural India has better weathered the pandemic impact. Cash usage in such areas was 15-20% higher than before. Cash still comprises more than 70% of merchant payment transactions in these areas, Raghavan said.
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