On November 8, 2016, the government of India announced demonetization of all Mahatma Gandhi series of 500 and 1000 rupee notes stating it as a move to curtail shadow economy and to crack down the use of illicit and counterfeit cash to fund illegal activities and terrorism. However, the data released by RBI claims that the currencies with the public has reached a record of high over Rs.18.5 lakh crore, which is high than double the low of Rs.7.8 lakh crore after demonetization.
The currency released by RBI has jumped to Rs.19.3 lakh crore, which is from a low of about Rs.8.9 lakh crore post-demonetization. When compared to the percentage of GDP the proportion remains much lower than the level of pre-demonetization. This implies that the currency with the public is equal to total currency released for circulation minus cash with banks.
It is surprising to note that few months back there was a cash crush reported in various parts of the country. However, the data released is shocking and is in contrast with the high levels of cash available with the public.
Hoarding of cash was then identified to be the factor that could have triggered an artificial currency crunch in the country.
Both “currency with the public” and “currency in circulation” have crossed the levels seen before the demonetization.
By June 2017, people had returned around Rs.15.28 lakh crore to banks. This is nearly 99% of the banned notes of 500 and 1000 currencies. Later, RBI has introduced new series of Rs.2000, Rs.500 and Rs.200 series of notes among others.
Reportedly, the data reveals that the currency with public at over Rs.18.5 lakh crore was more than 31% higher than the level, a year-ago.
The unexpected move made by Narendra Modi government with high expectations seems to be a big failure. The ineffectiveness of historic move needs to be analysed to reduce the circulation of unrecorded currencies with public or else things will mess than before.