HYDERABAD: Currency in circulation fell for three consecutive weeks in November, for the first time since demonetisation. This is a significant departure from the seasonal trend, when currency in circulation increases during the festive season and especially ahead of elections.
Data released by the Reserve Bank of India on Wednesday showed that currency in circulation reduced by Rs 11,600 crore between November 9 and 23. The declining trend, experts say, is possibly due to the withdrawal of high-value notes, particularly Rs 2,000, from the system.
“The only reason could be certain Rs 2,000 notes being withdrawn gradually and non-commensurate lower currency notes being printed. Currency in circulation can’t be coming down otherwise,” Madan Sabnavis, Chief Economist, Care Ratings, told TNIE.
Interestingly, data on notes issued by RBI further strengthen the belief that currency is possibly being withdrawn. For the first time in recent quarters, notes issued dropped from Rs 19,966,43 crore to Rs 19,897,00 crore between November 9 and 16. Following demonetisation, notes issued seldom saw a fall until now, while currency in circulation dipped once (October 20-27) during last year’s festive season. Even prior to demonetisation in 2015, it reduced only in one week during October 23-30.
“People park cash in deposits, withdraw during festive season and we see a spike during elections... but It comes down only when money is withdrawn. The last time it happened was on account of demonetisation,” Sabnavis explained.
“People park cash in deposits, withdraw during festive season and we see a spike during elections...but it comes down only when money is withdrawn,” said Madan Sabnavis of Care Ratings.
Not all agree with the view. According to former RBI Deputy Governor R Gandhi, people withdraw cash during festive season to spend and eventually, it comes back into the system. “It’s not unusual. However, if it’s state elections, currency circulation increases in those states,” he reasoned.
According to Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, growth in currency expansion has been declining since July and the reduction this month could be due to a deceleration in economic activity. “There was a huge expansion during Diwali season, and it’s (cash) not getting back into the chain,” he said, adding that a definitive conclusion can be made if the declining trend continues even in December.