CiC to GDP ratio stays excessive at 14.5% for FY21: Currency-in-circulation development falls

A 12 months after the Covid-19 pandemic led to a surge in demand for money, the expansion in forex in circulation (CiC) has declined as of November this 12 months if the most recent information from the Reserve Bank of India and the Finance Ministry is any indication.
The development in CiC has fallen to 7.9 per cent (Rs 2.14 lakh crore) in November 2021 as in opposition to 22.2 per cent (over Rs 5 lakh crore) development in the identical month a 12 months in the past. However, greater than 5 years after demonetisation, CiC has risen steadily yearly, with the CiC to GDP ratio having now surged to 14.5 per cent in 2020-21 from 8.7 per cent in 2016-17, as per information offered by the Finance Ministry in Parliament. CiC to GDP ratio is now ever increased than that within the pre-demonetisation interval.
Precautionary demand for forex in the course of the pandemic occasions has been a key motive for rising forex with public, in response to the Finance Ministry.
Cash within the system has been steadily rising, though the federal government and the RBI have pushed for a “less cash society”, digitisation of funds and imposed restrictions on using money in varied transactions. CiC rose to Rs 29.56 lakh crore as December 3, 2021 from Rs 27.58 lakh crore a 12 months in the past. The authorities had argued that demonetisation would result in lesser money with public, nonetheless, money utilization has solely risen since then.
“Demand for currency depends upon several macro-economic factors including economic growth and level of interest rate. Precautionary demand generated by public during financial year 2020-21 due to Covid-19 pandemic induced uncertainties is also an important factor in currency demand,” Minister of State for Finance Pankaj Chaudhary stated in reply to a question on Rajya Sabha on Tuesday, “Combination of greater public demand for cash and a contraction in GDP has led to an increase in CiC as a percentage of GDP to 12 per cent and 14.5 per cent in FY 2019-20 and FY 2020-21, respectively,” he added.
However, 12 months on 12 months development in CiC has decelerated sharply to 7.9 per cent as on November 2021 from pandemic influenced surge to 22.2 per cent a 12 months in the past, he stated.

As per the RBI’s definition, forex with public is arrived at after deducting money with banks from whole CiC. CIC refers to money or forex inside a rustic that’s bodily used to conduct transactions between shoppers and companies. After Rs 500 and Rs 1,000 notes have been withdrawn in November 2016, forex with the general public — which stood at Rs 17.97 lakh crore on November 4, 2016 — declined to Rs 7.8 lakh crore in January 2017.
The bounce in forex with public final 12 months was primarily pushed by a rush for money by the general public, because the Centre introduced stringent lockdown to deal with the unfold of the Covid pandemic. The sudden withdrawal of notes in November 2016 had roiled the financial system, with demand falling, companies dealing with a disaster and gross home product development declining practically 1.5 per cent. Many small items have been hit onerous and shut shutters after the notice ban. It additionally created a liquidity scarcity.Although digital funds have been rising, each in worth and quantity phrases throughout international locations, information suggests that in the identical time CiC to GDP ratio has elevated in consonance with the general financial development, as per an RBI research on digital funds.
Experts stated money continues to be the dominant medium of transactions in India, throughout areas and earnings teams. During the pageant season, money demand stays excessive as numerous retailers nonetheless depend upon money funds for end-to-end transactions. Cash stays a significant mode of transaction with about 15 crore folks not having a checking account. Moreover, 90 per cent of e-commerce transactions use money as fee mode in tier 4 cities in comparison with 50 per cent in tier 1 cities.