MUMBAI : Did Prime Minister Narendra Modi drop the biggest hint about demonetisation’s major finding? On Tuesday, addressing the nation from the Red Fort, Modi said Rs 1.75 lakh crore deposited in banks following the note-ban and more than 18 lakh people with disproportionate income are under scrutiny. “ Rs 3 lakh crore of additional money came in… the government didn’t do this research, outside experts say this… this money came into the banking system because of demonetisation,” he added.
Incidentally, just last week, a research paper by RBI staff revealed that ‘unusual’ cash deposits aggregating Rs 1.6-1.7 lakh crore were made following demonetisation.
Intriguingly, the shortfall of currency in circulation compared to pre-demonetisation era also works out to be similar, assuming the central bank did not slow down the remonetisation pace in the last two months. As of June, 82.6 per cent of pre-December and November notes in circulation was remonetised (up from 73 per cent in March), which means the shortfall was approximately Rs 4 lakh crore two months ago and could well now be less than Rs 2 lakh crore.
The uncanny connection to Rs 1.75 lakh crore thus, then, strengthens the argument that this could be the excess cash present in our system. In the past few years, currency printing rate was believed to much higher than the country’s nominal GDP growth. By conservative estimates, there was an excess cash of at least Rs 2.5 lakh crore prior to demonetisation. SBI Research, in March, hence argued the RBI shouldn’t print Rs 1.17 lakh crore worth notes and setting the currency in circulation at `16.8 lakh crore, a notch lower than Rs 17.97 lakh crore pre-demonetisation.
All eyes are on RBI for its commentary on total notes received, plus the current percentage of high-value notes. RBI’s last update on invalidated notes was seven months ago in December, when Rs 12.44 lakh crore invalidated high value notes were deposited with banks. It’s highly anticipated that the central bank’s forthcoming annual report later this month will likely shed some light on the returned currency.
Money Math
Rs 17.97 lakh cr - Currency in circulation in 2016
Rs 15.44 lakh cr -Demonetised currency
Rs 14.52 lakh cr - Currency in circulation in 2017 (Jun 23)