Indians Continue To Stock Up On Cash At A Slower Pace
The growth in currency in circulation in the Indian economy is easing from levels seen last year and the year before.
Indians are accumulating cash at a slower pace amid normalisation in the economy.
On an annual basis, the currency in circulation rose by 8.2% for the week ended Aug. 19, 2022, compared to a rise of 10.2% in the corresponding period a year ago, according to data from the Reserve Bank of India. It has continued to rise at a decelerating pace since April this year.
In absolute terms, the currency in circulation rose to Rs 31.97 lakh crore for the week ended Aug. 19, 2022, according to RBI data. It rose by Rs 2.1 lakh crore between the start of the year to mid-August, compared to a rise of Rs 1.8 lakh crore in the same duration the previous year.
Month-on-month, the currency in circulation on an average has fallen for the third straight month in August, as per data available so far. To be sure, the fall is marginal at -0.2% in August, from a fall of 0.6% in July.
A fall in currency in circulation could be indicative of a decline in spending, Soumyajit Niyogi, director at India Ratings and Research, told BQ Prime. Lower rural spending and spending by the lower end of the pyramid could have brought about a decline in CIC, he said.
During the pandemic, people held cash because of uncertainty. The need for that, too, has slowed down over the last few months amid normalisation in the economy, he said.
According to Sameer Narang, head of economics research at ICICI Bank Ltd., the currency in circulation is no longer rising at the same pace amid continuing normalisation. People are no longer required to hold precautionary savings, Narang said.
The decline is also seasonal and likely to pick up with the onset of the festive season, Niyogi said.
Currency to GDP ratio has gone up over the last two years and CIC is likely to remain significant compared to pre-pandemic period as inflation is still high, he said.
Money Supply Growth
Growth in broader money supply in the economy is also easing from levels seen last year and the year before.
Narrow money or M1, as it is known in technical parlance, which includes currency with public and demand deposits grew at 9% for the week ended Aug. 12, 2022, compared to 14.6% at this time a year ago.
Broad money or M3, which includes time deposits as well, is growing at 8.4% annually, compared to 10.5% a year ago.
While the currency in circulation is showing signs of normalisation, percentage growth remains coloured by the base effect, said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank Ltd. As such, after the festive and wedding season and by the end of the fiscal, making an inference would be simpler, she said.