Statsguru: Currency in circulation surpasses pre-demonetisation level

A security guard sleeps near an 'out of service' ATM machine in Ahmedabad . (Photo: PTI)
Over the course of the past few weeks, reports of cash shortages from a number of states across the country have dominated the headlines.

While various explanations ranging from high demand during festive season to operational and logistical issues have been put forth, it is difficult to arrive at a conclusive explanation for this rather unusual phenomenon.

As seen in Chart 1, currency in circulation stood at Rs 18.425 trillion on April 6, 2018, higher than the pre-demonetisation level. But as a percentage of GDP it remains lower (Chart 2), prompting some to suggest that circulation should be ramped up. 

And while cash shortages were reported in states such as Andhra Pradesh, Gujarat, Maharashtra and Bihar, the data shows that some of these regions have received the most cash over the past year.

As shown in Chart 3, Hyderabad was supplied the most cash in the period between April 2017 and February 2018, followed by Ahmedabad and Nagpur.

On the other hand, while there have been numerous reports of ATMs not functioning, the number of ATMs in the country rose from 160,055 at the end of 2013-14 to 222,475 at the end of 2016-17. In February 2018, the last period for which the data is available, the number of ATMs stood marginally lower at 221,687 as seen in Chart 4. The data on monthly ATM usage shows a small dip in both the volume and value of transactions in February 2018 (Chart 5). A similar decline is observed in transactions through pre-paid payment instruments (PPIs) in February, though, as seen in Chart 6, one does observe an uptick in the value of transactions through PPIs. A possible explanation for the cash crunch is that currency is being hoarded. A report by SBI (Chart 7) shows that the income velocity has fallen, suggesting that cash is not being circulated adequately in the economy.

StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines. Compiled by BS Research Bureau


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