1. As Assam, West Bengal vote, Rajan asks why cash with public grows during elections

As Assam, West Bengal vote, Rajan asks why cash with public grows during elections

The rise in cash with the public despite deposit growth for FY16 at 9.9 per cent being the lowest since 1962, and inflation too being low. “You can see that there is a spike not just in the state going to polls but also in the neighbouring state.

By: | Published: April 6, 2016 3:55 PM
Raghuram Rajan, rbi, rbi Raghuram Rajan, corporates borrowings, Raghuram Rajan on corporate borrowings, rbi on corporate borrowings According to Raghuram Rajan, cash with the public was over Rs 50,000 crore more than the RBI had estimated for this time of the year and therefore needs to be analysed.

A rise in currency in circulation in India has often been associated with polls or spending during a festive season. RBI governor Raghuram Rajan noted this Tuesday, saying the high year-on-year rise in currency in circulation in fiscal 2016 could be because cash with the public goes up close to polls. “You can guess as to the reasons why. We can also guess,” he said when asked about the 16% year-on-year growth in FY16, the highest after fiscal 2011.

The rise in cash with the public despite deposit growth for FY16 at 9.9 per cent being the lowest since 1962, and inflation too being low. “You can see that there is a spike not just in the state going to polls but also in the neighbouring state. There is something there and we need to understand it better,” Rajan said. SBI chief Arundhati Bhattacharya too had flagged this a few days earlier, saying the RBI should check the reasons for the rise in cash with the public.

According to Rajan, cash with the public was over Rs 50,000 crore more than the RBI had estimated for this time of the year and therefore needs to be analysed. In the past, too, just before polls, there has been a rise in currency with the public with anecdotal reports of parties wooing voters with cash, for example in fiscal 2003-04 and 2011.

A note by investment bank Credit Suisse recently interpreted this divergence between low deposit growth and a rise in currency with the public as a possible revival of economic momentum, citing three instances — the second half of FY99, the second half of FY04 and in FY11 . It could be on account of the strong growth in the informal economy, the investment bank note suggested. An improvement in basic infrastructure, in the form of access to power, roads and phones, has led to a revival in the informal economy after 2008-09 , which is still dependent on physical currency usage, the note said.

  1. No Comments.

Go to Top