When prime minister Narendra Modi announced the drastic demonetisation move in November 2016, one of the intentions was to make India a less-cash economy.
Almost two years later, it seems he has achieved the exact opposite.
Cash holdings among Indian households have surged to 2.8% of national income at the end of the financial year 2018, the highest in almost a decade, according to the Reserve Bank of India’s (RBI’s) annual report released on Aug. 29. Bank savings and corporate deposits have, in the meantime, slipped to a decade low of 2.9%.
“With the phase-out of restrictions on cash withdrawals and the gradual pick-up in currency demand, deposit growth started decelerating and reached its lowest level of 2.6% on Dec. 08, 2017. Over the rest of the year, deposit growth increased steadily, but at 5.8% on March 31, 2018, it was sizably lower than 11.1% a year ago,” the report said.
The amount of cash in circulation in India as a share of its GDP was at around 10.9%, the highest among both emerging and advanced economies, it added. In fiscal 2017, it stood at 8.8%.
The value of banknotes in circulation had increased by 37.7% over the previous financial year to Rs18.03 lakh crore. The volume, however, had increased by only 2.1% since the old notes had been replaced by ones of even higher value such as Rs2,000 and Rs200.
On Nov. 08, 2016, Modi banned the Rs500 and Rs1,000 currency notes, which together accounted for about 86% of the currency in circulation by value then. The ensuing acute cash crunch, sparked a surge in digital transactions even as bank deposits swelled.
However, soon after normalcy returned, cash has made its way back into the economy.
“The expectation was that digital will bridge the demand for cash, and even though electronic transactions are growing, it is not in accordance with what the government expected. In fact, as economic activity expands, it seems like cash is coming back with a vengeance,” the head of a firm that runs ATM operations across the country, told Quartz earlier.