Cash in system surges: Informal sector's back? -Mayur Shetty
-The Times of India
MUMBAI: Currency in circulation touched a new high of Rs 20.65 lakh crore on January 18, 2019, way above the pre-demonetisation high of Rs 17.97 lakh crore. The increase in currency usage points to a recovery in 'informality' in the economy as the government goes easy on goods and services tax compliance and businesses continue using cash, according to Pranjul Bhandari, chief economist, India, HSBC.
The acceleration of CIC since late-2017 has resulted in leakage of liquidity from the banking system, said Bhandari, who has previously served at the IMF, finance ministry and Planning Commission. The introduction of GST was expected to improve tax compliance but is taking time, she said in a research report.
She said the informal sector, which had weakened significantly following demonetisation has, with the progress of remonetisation, inched up.
However, Soumya Kanti Ghosh, chief economist, SBI group, told TOI, "It is a matter of debate whether currency in circulation implies more cash usage. This is because there has been a decline in velocity of money implying that fewer cash transactions are being made." In the past, economists have noted how CIC goes up ahead of major elections. Former governor Raghuram Rajan, too, had attributed the surge in currency in April 2016 to state elections. "Around election time, cash with the public does normally increase.... You can guess as to reasons why, we can also guess," he had said.
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