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BusinessLogr > Economy > Five years since demonetisation: Cash back in favour, beats pre-note ban ratio
Economy

Five years since demonetisation: Cash back in favour, beats pre-note ban ratio

Loknath Das
Last updated: 2021/11/08 at 11:53 AM
Loknath Das Published November 8, 2021
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The Opposition, however, has termed the note ban a gargantuan policy misadventure that only dented economic growth, rendered millions jobless and subsequently contributed to liquidity crisis among non-banking financial companies (NBFCs) and infrastructure lenders.

The government has been putting up a staunch defence of the note ban, arguing it put a leash on unbridled CIC, improved the taxpayer base and spurred greater formalisation of the economy.

Five years after the government announced demonetisation to curb the black money menace, the currency in circulation (CIC) has now well exceeded the pre-demonetisation level, reinforcing doubt over efficacy of the unprecedented move.

At Rs 29.45 lakh crore as of October 29, the CIC stood at 13.2% of budgetted nominal GDP for FY22, well above pre-demonetisation level of 11.7%.

The government has been putting up a staunch defence of the note ban, arguing it put a leash on unbridled CIC, improved the taxpayer base and spurred greater formalisation of the economy.

The Opposition, however, has termed the note ban a gargantuan policy misadventure that only dented economic growth, rendered millions jobless and subsequently contributed to liquidity crisis among non-banking financial companies (NBFCs) and infrastructure lenders.

The CIC has been rising steadily in recent years after a slump in the year after demonetisation. But its growth has catapulted particularly since the Covid-19 pandemic hit the country in early 2020. Analysts have attributed the spurt in CIC in FY21 to a pandemic-induced increase in demand for cash for medical and other emergencies like lockdowns. Although the cash-to-GDP ratio has now eased from about 13.8% a year before (October 30, 2020), it still remained at a much-elevated level.

Following demonetisation, as much as 99.3% of the demonetised high-value notes returned to the banking system, revealed the Reserve Bank of India’s annual report for 2017-18. Junked Rs 500 and Rs 1,000 notes worth Rs 15.31 lakh crore, out of Rs 15.41 lakh crore of these notes in circulation as of November 8, 2016, when the government announced demonetisation, found their way back to banks. The revelation had triggered a political slug-fest, with former finance minister P Chidambaram stating that the note ban was an exercise in futility and that the economy lost 1.5 percentage points of growth, which would translate into a loss of Rs 2.25 lakh crore a year.

[“source=financialexpress”]

 

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Loknath Das November 8, 2021
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