Even although UPI (Unified Payments Interface) transactions hit a document Rs10.4 trillion in May, having greater than doubled from a 12 months earlier than, Indians’ penchant for money stays intact. Banikinkar Pattanayak examines the development
Why is money nonetheless the king, regardless of rising digital transactions?
Consumption expenditure has been inching up since final fiscal, albeit at a slower-than-expected tempo, after a Covid- induced compression in FY21. This has considerably discouraged the precautionary hoarding of money, particularly in the course of the first Covid wave, for emergencies. However, as a share of GDP, the cash-in-circulation (CIC) this fiscal remains to be decrease than the pandemic 12 months of FY21.
The dominance of money is partly pushed by limitations of digital funds on the provision facet, together with insufficient dispute decision mechanism, transaction failures and restricted accessibility in rural areas.
How does present money use evaluate with the pre-demonetisation degree?
As of end-March, the CIC made up 13.2% of the budgeted FY22 nominal GDP, means above the pre- demonetisation degree (November 4, 2016) degree of 11.7%. Of course, the ratio was decrease than 14.5% on the finish of FY21.
How has been the money use in the course of the pandemic?
People hoarded much less money in the course of the extra extreme second Covid wave than the primary one. From Rs 24.1 trillion as of March 20, 2020 (simply earlier than the pan-India lockdown was imposed from March 25, 2020), the CIC shot as much as Rs 26.9 trillion by September 18, 2020, a day after the primary wave peaked. It rose additional to Rs 27.7 trillion as of January 1, 2021 (by when the primary wave had considerably subsided). In distinction, the CIC rose simply over Rs 1 trillion between February 26, 2021 (earlier than the second wave gained tempo) and May 7 (when the second wave peaked) to Rs 29.4 trillion.
Why did the CIC surge in the course of the first wave?
Analysts attribute the spike in money hoarding/pre- cautionary financial savings within the wake of the primary wave to heigh- tened uncertainties round medical expenditure and revenue losses. So, the CIC shot up although each provide and demand sides of the economic system have been battered by Covid (actual GDP shrank 6.6% in FY21). Also, curbs on mobility & shop- ping have been most stringent then.
Will CBDC assist cut back money use?
The Central Bank Digital Currency, when launched, can doubtlessly cut back money use, offered it provides the identical anonymity in tran- sactions. For this, authorities should assure this beneath a legislation
Source: www.financialexpress.com”