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Date: December 6, 2021 6:38 am
Financial Express - Business News, Stock Market News

People hoarded less cash during second Covid wave

Nevertheless, cash remains the king. As of November 12, the CIC made up for 13.4% of the budgetted FY22 nominal GDP, way above the pre-demonetisation level (November 4, 2016) level of 11.7%. Of course, the ratio this fiscal is lower than 14.5% at the end of FY21. This reinforces the fear that five years after the government announced demonetisation to curb the black money menace, cash still rules.

People seem to have hoarded less cash during the more severe second Covid wave than the first one, as the growth in the currency in circulation (CIC) has started slowing down this fiscal after a spurt in FY21.

Analysts attributed the surge in cash hoardings/pre-cautionary savings in the wake of the first wave to heightened uncertainties around medical expenditure and income losses, triggered by several “unknown unknowns”. So, the CIC shot up despite the fact that both supply and demand sides of the economy were battered by the pandemic (real GDP shrank 7.3% last fiscal). But by the time the second wave hit the country, the level of uncertainties had eased, as people were more or less anticipating it.

From Rs 24.1 lakh crore as of March 20, 2020, (just before the pan-India lockdown from March 25, 2020), the CIC shot up to Rs 26.9 lakh crore by September 18 last year, a day after the first wave peaked. It rose further to Rs 27.7 lakh crore as of January 1 (by when the first wave had substantially subsided).

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In contrast, the CIC rose just over Rs one lakh crore between February 26 this year (before the second wave gained pace) and May 7 (when the second wave peaked) to Rs 29.4 lakh crore. In August, the CIC grew at its slowest pace since November 2017, signalling a visible departure from the pandemic-induced increase in precautionary savings. By October 1, when the second wave was way off its peak, the CIC, in fact, eased a tad to Rs 29.2 lakh crore.

According to the RBI data, the CIC rose just 4.9% until November 12 this fiscal, compared with 13.5% and 6.2% in the corresponding periods of FY21 and FY20, respectively.

Nevertheless, cash remains the king. As of November 12, the CIC made up for 13.4% of the budgetted FY22 nominal GDP, way above the pre-demonetisation level (November 4, 2016) level of 11.7%. Of course, the ratio this fiscal is lower than 14.5% at the end of FY21. This reinforces the fear that five years after the government announced demonetisation to curb the black money menace, cash still rules.

In fact, the CIC has been rising steadily in recent years after a slump in the year after demonetisation. But its growth catapulted after the Covid-19 pandemic hit the country in early 2020, partly due to a Covid-induced increase in demand for cash for medical and other emergencies like lockdowns.

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Interestingly, while the RBI was injecting liquidity into the system last fiscal through a mix of conventional and unconventional measures, people were holding on to cash or bank deposits. Consequently, although the broad money supply rose at a healthy pace, the rate of growth in the CIC beat that level.



Source: https://www.financialexpress.com

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