Was Indian economy fed less cash to meet digitisation objectives?
Chairman of the largest public sector bank in the country, State Bank of India (SBI), has stressed that there is more money in circulation than before demonetisation. If money available today is also sufficient to meet the demands of a growing economy, why the Reserve Bank of India (RBI) is saying that the printing of the notes have been ramped up in all the four note presses. The finance ministry has also pledged to supply adequate currency notes to meet the higher cash demand. Let us try to understand the rate at which the money in circulation has been growing in the system. There was Rs 11.64-lakh crore of currency in circulation in March 2013. The next year it grew to Rs 14.28 lakh crore, a growth of 10.13 per cent. In March 2015, the currency in circulation jumped to Rs 16.41-lakh crore, registering an increase of 11.38 per cent. The next year, March 2016, it actually jumped by 14.87 per cent to Rs 16.41 lakh. Then demonetisation took place in November 2016 and currency in circulation fell to Rs 6-7-lakh crore briefly, and by March 2017, it went up to Rs 12.10-lakh crore. This was certainly not the adequate level but the RBI had its own constraints in printing notes in a short period. In March 2018, the currency in circulation is back to Rs 18.27-lakh crore. So 17 months was a long enough period to release the notes, which are adequate for the economy. So, this Rs 18.27-lakh crore figure is also put up by bankers to justify that the currency in circulation today is as higher than the pre-demonetisation level of Rs 16-17 lakh crore. Certainly not. Many say the Indian economy has been the fastest growing economy in the world. It has been growing robustly at over 6.5 per cent. And if one adds inflation, the nominal GDP has been over 10 per cent. So, a growing economy like India needs injection of cash. The level of cash in the Indian economy has been around 10 per cent of the GDP. If you take a growth of 10 per cent for the money in circulation every year as a yardstick, it should have been at Rs 20-lakh crore plus today. Without demonetisation, the currency in circulation should have been Rs 18.05 lakh crore (and not Rs 13.1-lakh crore) in March 2017 and Rs 19.85-lakh crore in March 2018. Whereas the level of currency in circulation currently is Rs 18-lakh crore plus. This indicates the shortage of close to Rs 2-lakh crore. While there are many reasons cited for the current shortage of money, there is an urgent need to analyse the adequate level of cash that the economy needs otherwise shortages will only choke up the economy's growth. For example, in the post-demonetisation period, there was a number of micro, small and medium scale businesses, which were impacted because of the shortage of cash. There was loss of employment and also led to shutting down of businesses. Similarly, the Goods and Services Tax, too, impacted businesses. But now, with the situation stabilising, and people getting back to business or trying to rebuild it, the demand for cash is also rising gradually.