Lockdown period cash demand almost double the levels of last year's election phase

Mumbai: Cash demand during the lockdown is almost the double of what was witnessed during the election period last year. Beneficiaries of government cash deposit through DBT also withdrew cash from their accounts.
Cash infused by the Reserve Bank of India or the currency in circulation amounted to Rs 1.42 lakh crore between April 01 and May 15, the latest release on reserve money indicated. This is almost double the amount of Rs 72,984 crore which was released in the same period a year ago during which election cash demand was high.

Unlike in the past cash was used for buying essentials from the local stores as e-commerce and larger retail outlets facilitating digital transactions had virtually stopped. "While at normal times such a surge is seen as an indication of higher economic activity or event-driven phenomenon like elections, we suspect that the recent increase reflects higher cash withdrawals by depositors to meet needs during the lockdown period," said Radhika Rao, India economist at Singapore based DBS.

RBI releases the cash through the banking system. Banks in turn release cash through tellers and ATMs to the account holders or the general public. Between April 1 and May 08, currency with the public amounted to Rs 1.24 lakh crore compared to Rs 65551 crore in the same period a year ago. " A lot of cash is not coming back to the banking system during the current lock-down phase" said Anush Raghavan, senior vice president, CMS Infosystem, a company engaged in cash handling. "Regulators have also been ensuring that there is no shortage of cash at the teller or the ATMs and making sure it is available at the right places"

Experts say that from the money that has gone into the DBT accounts of women and senior Jan Dhan account holders as a part of the stimulus package announced by the finance minister in March, it is estimated that nearly Rs, 50,000-Rs 60,000 crore has been withdrawn by the beneficiary account holders.

Economists caution about this trend which could reverse with a surge in that cash going back to banks when normalcy returns. " (It is) also pointing to underlying caution over when normalcy would return," said Rao from DBS.