Demonetisation to permanently erode cash worth Rs 1.7 lakh crore: SBI research
MUMBAI: Demonetisation exercise by the government may permanently erode about Rs 1.7 lakh crore worth cash from the system translating into liquidity, according to a report by SBI Research. This would be equivalent to about 1.1% of GDP.
It may be difficult to ascribe a reason. “ Our estimates indicate that there would be a permanent liquidity injection of least Rs 1.7 lakh crore or about 1.1% of GDP post demonetization” said S K Ghosh , group chief economic advisor at SBI “ This data is a reflection of the extent of formalization of the economy post demonetization.“
After the December 30, 2016 deadline of depositing banned Rs 500 and Rs 1000 notes with the banks, cash withdrawal has been declining rapidly from a peak of Rs 52800 crore for the week ended January 13,’17 to Rs 32500 crore during the week ended March 24’17. Even in the span of one week between March 7 and March24, cash withdrawal has declined by Rs 2000 crore, the SBI report said.
The decline in cash withdrawals is intriguing even as limits on withdrawals have been removed completely from March 13, according to SBI’s research team.
Historically average withdrawals are generally higher in the first fortnight of a month because people tend to spend more in first fortnight. However, even that peak has been declining since January (a decline of Rs 54 billion as on March 24). It may be noted that the average withdrawal in the pre-demonetisation levels period in FY17 in the first fortnight was only around Rs 21000 crore.
The report does not attribute any firm reason for the trend. “Are people now averse to cash withdrawals because of strict monitoring? Or, there is indeed a shift to digital transactions? We are indeed not sure.” The report said. “ It may be also noted that with the implementation of ban on cash transactions of over Rs 2 lakh from April 1, further decline in cash withdrawals may be a possibility.”
This declining trend in cash withdrawals will also have repercussions on RBI liquidity management policy, it said.
It may be difficult to ascribe a reason. “ Our estimates indicate that there would be a permanent liquidity injection of least Rs 1.7 lakh crore or about 1.1% of GDP post demonetization” said S K Ghosh , group chief economic advisor at SBI “ This data is a reflection of the extent of formalization of the economy post demonetization.“
After the December 30, 2016 deadline of depositing banned Rs 500 and Rs 1000 notes with the banks, cash withdrawal has been declining rapidly from a peak of Rs 52800 crore for the week ended January 13,’17 to Rs 32500 crore during the week ended March 24’17. Even in the span of one week between March 7 and March24, cash withdrawal has declined by Rs 2000 crore, the SBI report said.
The decline in cash withdrawals is intriguing even as limits on withdrawals have been removed completely from March 13, according to SBI’s research team.
Historically average withdrawals are generally higher in the first fortnight of a month because people tend to spend more in first fortnight. However, even that peak has been declining since January (a decline of Rs 54 billion as on March 24). It may be noted that the average withdrawal in the pre-demonetisation levels period in FY17 in the first fortnight was only around Rs 21000 crore.
The report does not attribute any firm reason for the trend. “Are people now averse to cash withdrawals because of strict monitoring? Or, there is indeed a shift to digital transactions? We are indeed not sure.” The report said. “ It may be also noted that with the implementation of ban on cash transactions of over Rs 2 lakh from April 1, further decline in cash withdrawals may be a possibility.”
This declining trend in cash withdrawals will also have repercussions on RBI liquidity management policy, it said.
