Centre’s decision to withdraw Rs 500 and Rs 1,000 notes may have bewildered many but indications were there back in March this year. Maintaining secrecy was a crucial aspect. However, State Bank of India’s research report ‘SBI Ecowatch’ had pointed out to the possibility of ‘demonetisation’ being on the anvil. The report, authored by SBI’s chief economic adviser Soumya Kanti Ghosh and his team, had cited an ‘unusual rise’ in currency with public, estimated to have risen 25 per cent year-on-year in April-January of 2015-16 fiscal, a report said. “Currency with public grew by 25 per cent during the period April-January FY16 as against corresponding period last year. Earlier to that, currency with public grew by 57.2 per cent during the same period in FY11. Even the YoY growth in currency with public increased by 12.3 per cent as of Jan 2016. This recent growth in currency with public is quite puzzling as none of the indicators validates this growth as nominal growth has collapsed,” the report said.
According to The Indian Express report, the SBI research report had gone on to state that the higher currency notes may be discontinued in the near future so as to tackle the menace of unaccounted money. The report had further hinted at a possible link between the huge surge in gems and jewellery production with usage of cash stating that demonetisation may have already started. The rise in currency with public, it said, “defies logic” and needs analysis. Popularisation of digital and electronic channels could be a possible way out as the total number of point of sale (POS) machines in the country is around 12,70,208 and ATMs are 1,92,208, which is highly inadequate for a population of 1.3 trillion people, the SBI report added. “…we need to juxtapose the huge surge in gems and jewellery segment (during Apr-Dec FY16, gems and jewellery production grew by whopping 97.1 per cent compared with negative growth of 2.1 per cent during the corresponding period last year) with the strong surge in currency with public in this fiscal,” the March 2016 report said. Ghosh was sent an e-mail regarding the report but he did not reply.
“…if we were to draw a link between such production surge and usage of cash, it maybe possible that demonetisation may have already started to happen prior to the government withdrawing high value notes from circulation (as per unconfirmed available reports, higher currency denomination notes may be discontinued in the near future so as to tackle the menace of unaccounted money). If this is true and the government gives a window to people to declare unaccounted money in the Budget over the next 6 months, this demonetisation trend may actually increase manifold,” the report had said.
The report had also said that ideally the rise in currency with public by virtue of creation of demand for goods should lead to improvement in Index of Industrial Production, which did not happen as IIP was consistently negative for December and January. Also, for January 2016, the currency with public grew 12.3 per cent year-on-year, but Wholesale Price Index (WPI) inflation remained in negative territory unlike previous years such as January 2011 when a year-on-year rise of 19.7 per cent in currency with public was accompanied by WPI inflation of 9.5 per cent, the report said.