The cash is back with vengeance, the economy is still in tatters, while the Reserve Bank of India (RBI) and the government are fighting for supremacy, two years since the demonetisation.
The cash with the public, according to the latest data available with RBI, stood at a whopping Rs 18.8 lakh crore, 10.2% more than Rs 17 lakh crore that was in circulation prior to the demonetisation drive launched by Prime Minister Narendra Modi on November 8, 2016.
Digital payment
Surprisingly, the central bank, which was earlier disclosing the monthly data on the digital transactions, has stopped doing so since February. As on February 2018, the monthly digital payments stood at Rs 115.5 lakh crore.
Interestingly, at that time, when RBI stopped publishing the monthly ‘Electronic Payment Systems - Representative Data’, the digital payments were showing a slowdown in growth and even contracted at times.
In the month of February, the digital transactions declined by 12.5% on a sequential basis.
Prior to February 2018, digital payments had shown 5.1%, 3.7%, 5.7% growth, and an 8.2% contraction, in the preceding months respectively. These numbers are quite similar to the growth in digital payments prior to the demonetisation, when it was growing between 4%-7% on a sequential basis, an analysis of RBI data shows.
Though various independent studies suggest the increase in the digital transactions post the note-ban, the growth is centered towards the metro cities in India.
In terms of note-ban as an exercise, to the disappointment of the government, of the Rs 15.41 lakh crore worth Rs 500 and Rs 1,000 notes in circulation on November 8, 2016, when the note ban was announced, notes worth Rs 15.31 lakh crore have been returned.
Economic stress
But, demonetisation came with a cost – a massive slowdown in the economy, which is still having ripple effects. Although the official figures have improved on the GDP growth front, after slumping to a three-year low of 5.7% in the April-June quarter of 2017, before recovering further. But the ‘recovery’ has been marred with controversy, as the government changed the base year for calculation of GDP and retail inflation to 2017-18 and 2018-19, respectively.
Growth figures aside, the industry insiders suggest that the economy is reeling under a terrible stress. “The economy is still reeling under the stress. Businesses are facing a shortage of funds post-demonetisation,” an industry captain from the electronics industry said.
Retail loans suffer
On the consumer side, the banks have started to feel the ripples with a rise in the retail non-performing assets. “We are of late seeing an uptick in the NPAs of the retail sector loan,” said the chairman of a public sector bank, who did not wish to be quoted.
In fact, analysts attribute it to the demonetisation. “Retail loans, the majority of which are personal loans, are taken mostly by lower middle class, whose primary source of income is in cash. So, post demonetisation, it will have the cascading effects,” an analyst with an advisory firm, tracking banking sector said.
SME jolt
On the SME side, as well, according to the industry insiders, there is a problem in demonetisation. “There has been lack of consumption as well as lack of business in the SMEs. The most people in the SME segment are from the lower middle class, so they are facing a lot of problems,” an industry body head said.
RBI versus government
In fact, one of the major contentions between the RBI and the central government other than the dispute over RBI reserves, according to the sources, is the lack of credit growth in the SME segment. “The government feels that RBI Governor Urjit Patel’s recent crackdown on the bad loans has stopped the credit growth, with major impact on SMEs,” sources added.
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