NEW DELHI, Nov 7: Five years after the demonetisation, currency notes in circulation continue to rise albeit at a slower pace even as digital payments surge with more and more people embracing cashless payment modes.
Primarily, banknotes in circulation went up in the last financial year as many people opted for the precautionary holding of cash amid the COVID-19 pandemic disrupting normal lives and economic activities in varying degrees.
Official data points out a jump in digital payments through different modes, including plastic cards, net banking and Unified Payments Interface. UPI of the National Payments Corporation of India (NPCI) is fast emerging as a major medium of payment in the country. All said, currency notes in circulation are still in the upward curve.
On November 8, five years ago, Prime Minister Narendra Modi had announced the demonetisation of old Rs 1,000 and Rs 500 banknotes and one of the key objectives of the unprecedented decision was to promote digital payments and curb black money flows.
Thanks to the increasing popularity of digital payment ways, cash usage is not growing at a fast clip but still is on the rise.
According to the latest Reserve Bank data, the notes in circulation in value terms soared from Rs 17.74 lakh crore on November 4, 2016, to Rs 29.17 lakh crore on October 29, 2021.
The notes in circulation (NIC) increased by Rs 2,28,963 crore on October 29, 2021, from Rs 26.88 lakh crore as on October 30, 2020. The year-on-year increase on October 30, 2020, was Rs 4,57,059 crore. The data revealed the year-on-year increase in NIC on November 1, 2019, was Rs 2,84,451 crore.
The value and volume of banknotes in circulation had increased by 16.8 per cent and 7.2 per cent, respectively, during 2020-21 as against an increase of 14.7 per cent and 6.6 per cent, respectively, witnessed during 2019-20.
The banknotes in circulation had increased during 2020-21, primarily on account of precautionary holding of cash by people due to the pandemic.
NIC had grown at an average growth rate of 14.51 per cent year-on-year from October 2014 till October 2016, the month preceding the demonetisation.
During the last Parliament session, the government had said the quantum of banknotes in the economy broadly depends on the GDP growth, inflation, and replacement of soiled banknotes and growth in non-cash modes of payment. Barring the COVID-19-hit 2020-21 financial year, the Indian economy has recorded a positive growth rate.
The UPI was launched in 2016, and the transactions have been growing month-on-month barring a few blips. In October 2021, the transactions in value terms stood at over Rs 7.71 lakh crore or over USD 100 billion. A total of 421 crore transactions were done through UPI in October.
The sudden decision of the government to withdraw the two high denomination currencies five years ago lead to long queues outside banks to exchange/deposit the demonetised notes. Several sectors of the economy, especially the unorganised segment, was affected by the government’s decision.
Anuj Puri, chairman of ANAROCK Group, said that although there was a lot of confusion and uncertainty immediately after demonetisation, the shadow of the “radical move has now faded”.
“Nevertheless, it had a profound impact in the first year after it was announced, he said, and added the housing market emerged stronger than before, with speculative buying and selling getting eliminated and end-users emerging as the strongest market drivers in the primary sales segment,” Puri said.
He added that the secondary market was highly susceptible to demonetisation as compared to the primary market. Property transactions in the secondary sales and luxury housing segments tended to have significant cash components.
“It cannot be said that cash components have been eliminated from the market. However, they have become a far less influential factor driving property purchases,” he added. (PTI)
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