This comes after the RBI announced in November 2018 that there was more currency in the system than before PM Narendra Modi's demonetisation announcement in 2016
The argument that cash is coming back aggressively into the system and financing informal activities may not entirely be valid. India's present currency circulation is at Rs 20.4 lakh crore, which is at least Rs 1.5 lakh crore lower than what it would have reached if there had been no demonetisation, according to the SBI Ecowrap report.
This comes after the Reserve Bank of India announced in November 2018 that there was more currency in the Indian economic system than before Prime Minister Narendra Modi's demonetisation announcement in 2016.
The report adds that there is a paradox in the economy as the currency in circulation has expanded but the income velocity of money has shown a sharp plunge. Income velocity of money means the frequency at which a particular unit of currency is used to purchase products. A declining velocity suggests that money is not getting adequately circulated in the economy.
States like Maharashtra, Uttar Pradesh and Karnataka showed income velocity less than the national average, while Madhya Pradesh, Chhattisgarh and Andhra Pradesh fared on the higher side of the national average. Trends in the velocity indicate prevailing rural distress in the economy, the report said.
Notes of smaller denominations have apparently been in demand. "In FY18, the pace of circulating 200 denomination notes has increased manifold, as has been the case with notes of smaller denomination. This may have altered the demand for smaller denomination notes in a larger way to possibly substitute for the currency of larger denominations (Rs 2000 rupee notes are not getting printed as per RBI)," SBI Group Chief Economic Adviser Soumya Kanti Ghosh said in the report.
