‘State polls driving Rs 60k cr cash circulation surge’

Red-flagging a massive surge in cash circulation during the ongoing state elections, RBI Governor Raghuram Rajan on Tuesday said money in people’s hands has gone up by over Rs 60,000 crore which is “not normal” and needs to be looked into.

“Around election time, cash with the public does normally increase... You can guess as to reasons why, we can also guess,” Rajan told reporters here after announcing his first bi-monthly monetary policy review of this fiscal. However, cash in people’s hands is up by more than Rs 60,000 crore at present, which is “not normal”, he added. “You see some (spike) not just in the state going to elections, but also in the neighbouring states. There is something... We need to understand it better,” Rajan said.

While Rajan did not get into the specifics about cash usage during election time, almost every poll season sees cash-for-vote allegations flying thick and fast. Also, quite often instances are reported about polling officials recovering huge cache of unaccounted money. The election process is currently underway in Assam, West Bengal, Kerala, Tamil Nadu and the Union Territory of Puducherry. Out of these, Assam and West Bengal had the first phase of polling yesterday. These polls are being seen as very important for these states as also at the national level. As per the latest data released by RBI, there was a 48 per cent increase in the currency in circulation at Rs 2 trillion for the fortnight ended March 18. This has led to speculations about the reasons, leading to calls for a need to keep a tab on the cash circulation. For the same fortnight, the bank deposits growth also fell below 10 per cent, to 9.9 per cent, which was a 53-year low, while advances have picked up.

On this, the Governor said it is good that advances have started growing above the deposit rates. And that “deposit rates at 9.9 per cent is not something that one must be sneezed at. This is a healthy growth trend,” he added. Generally, RBI has observed that the cash goes up during festivities. Meanwhile, the Reserve Bank on Tuesday said it expects the economy to grow by 7.6 per cent in the current fiscal on the back of favourable monsoon, a notch lower than the upper end of government’s range of 7-7.75 per cent.

The uneven recovery in growth in 2015-16 is likely to strengthen gradually into 2016-17, assuming a normal monsoon, the likely boost to consumption demand from the implementation of the 7th Pay Commission recommendations and OROP and continuing monetary policy accommodation. “The GVA (Gross Value Added) growth projection for 2016-17 is accordingly retained at 7.6 per cent, with risks evenly balanced around it,” RBI said in its first bi-monthly monetary policy statement for 2016-17.

After two consecutive years of deficient monsoon, a normal monsoon would work as a favourable supply shock, strengthening rural demand and augmenting the supply of farm products that also influence inflation, it said. However, a fading impact of lower input costs, persisting corporate sector stress and risk aversion in the banking system, and the weaker global growth and trade outlook could impart a downside to growth outcomes going forward, RBI said. The Finance Ministry has projected Indian economy to grow 7-7.75 per cent in current fiscal, which at the upper end is higher than 7.4 per cent clocked last fiscal. The Asian Development Bank (ADB) too had projected Indian’s economic growth for current fiscal at 7.6 per cent.