Did demonetization boost Digital-India? Currency with public crosses pre-November'16 levels
There were two prime goals of demonetization- removal of black money and advancing towards a cashless economy. Long ago, RBI confirmed roughly 99% of demonetized notes had returned into the system, thus rendering its first goal a failure. Turns out, it did nothing to achieve the second either- currency with the public is at Rs. 18.5L crore, more than the Rs. 17L crore before demonetization.
The fall and rise in public money after demonetization
Demonetization made nearly 86% of currency then in circulation invalid. Right afterwards, currency with the public dropped to a low Rs. 7.8L crore (December 9, 2016). By June 30, 2017, Rs. 15.28L crore had returned to the system. Fifteen days ago, currency with the public was at Rs. 18.5L crore, up 31% since last year, and more than 100% since December 9.
Currency in circulation, including cash with banks, also increased
Coming to currency in circulation (currency with the public plus cash with banks), the latest figure as on June 1 stands at over Rs. 19.3L crore. Before demonetization, it was at Rs. 17.9L crore, which dropped to Rs. 8.9L crore by January 6, 2017. Showing a similar trend, the current currency in circulation shows a jump of 30% since last year's levels.
Total money supply also increased
Total money supply in the economy- 'M3' (which includes currency with the public as well as deposits with the banking system)- now stands at over Rs. 140L crore, almost 11% more than figures recorded a year ago. During demonetization, it was at Rs. 120L crore.
This comes after a sharp cash crunch in several states
Incidentally, these high figures come after a massive cash crunch hit the public across several states a couple of months ago. Hoarding of notes was suspected to be a major factor behind the shortage. There was a delay in supply of new notes too, for many of which ATMs had to be recalibrated. The government had assured printing of notes will be stepped up.
What do the latest figures tell us?
Demonetization did boost digital transactions- in November'17, the NPCI said UPI transactions have shot up by 77 times since demonetization. But the latest figures imply the economy, where most transactions are recorded in the informal sector and thus made by cash, is settling down in its original position. Experts' assurances that demonetization will achieve its goals in the long-run seem more unrealistic than ever.
