In an indication that digital economy has not worked as efficiently and people still prefer to trade in cash, India's currency in circulation has risen to Rs 19.48 lakh crore as on September 14 as against Rs 18.29 lakh crore six months ago on March 31.
On a weekly basis, the rise in currency in circulation was Rs 8,300 crore but on a yearly basis, it has risen over 23%, the RBI's weekly statistical supplement showed.
As per RBI definition, currency in circulation includes notes in circulation, rupee coins and small coins.
The currency in circulation has already crossed the pre-demonetisation level when it was Rs 17.97 lakh crore.
The spike in currency in circulation, which is a reflection of cash in use, could be due to a rise in consumer demand ahead of the festive season.
Election impact
A temporary jump in circulation is also witnessed closer to elections. Elections are due in Rajasthan, Madhya Pradesh, Chattisgarh and Mizoram in the next three to four months.
Another factor which explains the rise in currency in circulation is a spike in inflation which requires a higher spending by people. Although the rate of inflation – both wholesale price and consumer price – have come down of late, the rise in oil prices, especially diesel, in the past as many months will translate into a spike in prices of essential commodities going ahead.
The growth in currency in circulation becomes a major concern for the RBI if it is accompanied by a fall or a lower growth in the rate of bank deposits. The two combined portray worsening liquidity conditions in the banking sector.
Deposits growth
The latest RBI data on bank deposit growth has shown that bank deposits grew less than 10% on a year-on-year basis in between August 18, 2017-August 17, 2018.
The latest data also showed that net RBI credit to the Centre came down to Rs 6.6 lakh crore from the previous week when the RBI's net credit to the government was close to 6.9 lakh crore. The fall in net credit represents a robust inflow of tax revenues in the government's coffers.
