Data from the Reserve Bank of India (RBI), released on November 8, 2019, showed that the currency with the public grew 15.2% to Rs 21.59 lakh crores, as of the fortnight to October 25, as against Rs 17.97 lakh crores on November 4, 2016. However, the growth of currency in circulation seems to be slowing down as it grew 21.1% in the last year, over the previous year. On November 8, 2016, the government and RBI pulled out Rs 500 and Rs 1,000 denomination notes from the system in a surprise move. Apart from prodding the people to move to digital, which would have helped arrest the growth of black money, the demonetsation move was also aimed at curbing fake currency and restricting insurgency activities.
According to the RBI data, there has been a 5.2% addition to the cash economy with the public between April 1 and October 25, 2019, which is slower, compared to 6.6% growth a year ago. After falling massively post-demonetisation by nearly Rs 10 lakh crores, the currency in circulation has recouped at a faster pace, and it took over 16 months for the levels to go back to the pre-demonetisation levels. Digital payments have grown manifold over time and the UPI volumes hit the 1 billion transactions-mark in a single month, in October 2019.
Demonetisation had no effect on Indian economy: FM Sitharaman
Newly sworn-in finance minister Nirmala Sitharaman, while conceding that the manufacturing sector had witnessed a decline in growth, has said that this slowdown cannot be attributed to demonetisation
July 3, 2019: India still continues to be the fastest-growing economy and demonetisation has had no effect on the Indian economy, finance minister Nirmala Sitharaman informed the Rajya Sabha on July 2, 2019. The minister, while responding to supplementaries during the Question Hour, said the manufacturing sector has had a certain fall but it is not attributable to demonetisation.
Sitharaman said the moderation in growth momentum in 2018-19, was primarily on account of lower growth in ‘agriculture and allied’, ‘trade, hotel, transport, storage, communication and services related to broadcasting’ and ‘public administration and defence’ sectors. “If the impact of low growth in certain sectors has impacted the growth rate, particularly in agriculture and allied activities, and also in financial and real estate and professional services, there has been a fall, particularly in agriculture based on third advance estimates, it is believed that there has been a 0.6 per cent decline in the output. If the impact on the low growth is because of outcomes from these sectors, the manufacturing sector has had a certain fall but which is not attributable to demonetisation,” the minister said.
She said in the last quarter, there could have been a fall and steps have been taken to improve the economy. “However, we are still the fastest growing economy,” she said. Sitharaman said that if the United States’ growth has been between 1.6, 2.2, 2.9 and 2.3 per cent in 2016, 2017, 2018 and 2019, and China’s growth has also decelerated from 6.7, 6.8, 6.6 and 6.3 per cent, India is still well above 7 per cent at 7.3 per cent growth. In her written reply, the finance minister said, as per estimates available from Central Statistics Office, growth of gross domestic product (GDP) at constant prices was 6.8 percent in 2018-19, as compared to 7.2 percent in 2017-18 and 8.2 percent in 2016-17.
See also: Financial system stable despite NBFC crisis, as NPAs fall sharply to 9.3% in FY19: RBI
“Economic growth is high on the agenda of the government. Various reforms are being undertaken by the government in many spheres to improve GDP growth. The key reforms in the governments new term include expansion to all farmers, the cash transfer scheme ‘PM-Kisan’, providing an income support of Rs 6,000 per year, which was earlier limited to farmers with a land holding of less than 2 hectares,” she said. To give focused attention to issues of growth, the government has constituted a five-member cabinet committee on investment and growth chaired by the prime minister.
Demonetisation would hit economy, have no material effect on black money: RBI board had warned
The RBI board had warned of the short-term negative impact of demonetisation on the country’s economic growth and observed that the unprecedented move will not have any material impact on tackling the black money menace
March 12, 2019: Although demonetisation is ‘a commendable measure’, it would have ‘short-term negative effect on the GDP for the current year’, the Reserve Bank of India (RBI) board had said, as per the minutes of the meeting, posted by RTI activist Venkatesh Nayak on the website of Commonwealth Human Rights Initiative. “Most of the black money is held, not in the form of cash but in the form of real sector assets such as gold or real estate and that this move would not have a material impact on those assets,” the board observed, in its 561st meeting held in Delhi.
The board, according to minutes of the meeting revealed by the central bank in an RTI reply, had met just two-and-a-half hours before prime minister Narendra Modi in an address to the nation, announced the demonetisation decision on November 8, 2016.
The minutes of the crucial board meeting, which approved the government’s request for demonetisation, recorded the presence of the then RBI governor Urjit Patel and the then economic affairs secretary Shaktikanta Das. Others at the board meeting included the then financial services secretary Anjuli Chib Duggal and RBI deputy governors R Gandhi and SS Mundra. Both, Gandhi and Mundra, are not part of the board now, while Das was appointed as the RBI governor in December 2018. Curbing black money was one of the prime objectives of the shock move to junk old Rs 500 and Rs 1,000 notes, which saw 86 per cent of high-value currency going out of circulation.
See also: Information Commission pulls up RBI for non-disclosure of demonetisation records
The prime minister had announced demonetisation of high-value currency notes with the aim to curb the black money, check counterfeit currency and stop terror finance, among others. While any incidence of counterfeiting is a concern, the minutes said, Rs 400 crores as a percentage of the total quantum of currency in circulation in the country, is not very significant.
Of the Rs 15.41 lakh crores worth of Rs 500 and Rs 1,000 notes in circulation on November 8, 2016, notes worth Rs 15.31 lakh crores came back during the 50-day window for depositing junk notes given to resident Indians and till June 2017 for non-resident Indians. Only Rs 10,720 crores of the junked currency notes did not return to the banking system, while the rest 99.9% was deposited, raising a question mark over the government’s effort of curbing black money through demonetisation.
The minutes pointed that “The growth rate of economy mentioned is the real rate while the growth in currency in circulation is nominal. Adjusted for inflation, the difference may not be so stark. Hence, this argument does not adequately support the recommendation (in favour of demonetisation)”. The government has always maintained that the decision did not have much impact on the GDP growth. The board was assured that the government would take mitigating measures to contain the use of cash, it said.
In another reply, the RBI has said it has no data on the old Rs 500 and Rs 1,000 notes used to pay for utility bills such as fuel at petrol pumps – payments that are anonymous and are believed to have formed a good part of the demonetised currency that returned to the banking system. The government had allowed the exchange of the junked notes, as well as they being used for payment of utility bills for 23 services. Old 500 and 1,000 rupee notes could be used at government hospitals, railway ticketing, public transport, airline ticketing at airports, milk booths, crematoria/burial grounds, petrol pumps, metro rail tickets, purchase of medicines on doctor prescription from the government and private pharmacies, LPG gas cylinders, railway catering, electricity and water bills, ASI monument entry tickets and highway toll.
On November 25, 2016, the exchange of old notes was stopped and the government allowed the use of only old 500 rupee notes at these utilities, till December 15, 2016. The government, however, stopped the use of even this currency at petrol pumps and for the purchase of air tickets at airports abruptly, with effect from December 2, 2016, after reports that they were becoming fronts for laundering of old currency notes.
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