[sbinews] Cash Deals

  • From: sbistcbangalore@xxxxxxxx
  • To: sbinews@xxxxxxxxxxxxx
  • Date: Tue, 23 Dec 2003 07:11:58 +0500

Public deals more in cash, thanks to rural pick-up 

MUMBAI: The festivals are over, yet the cash in circulation is continuing its 
upward spiral — and at a much faster pace than last year. This rise has been 
attributed to a combination of factors, including the election in four states 
and the general pick-up in spending, particularly in the rural economy. 

As on December 12, the incremental growth in currency with the public amounted 
to Rs 31,814 crore — Rs 8,685 crore more than the growth of Rs 23,129 crore in 
the corresponding period of ‘02-03. Though the currency in circulation displays 
a cyclical pattern, and the movement throughout the year has been more or less 
in sync with the trend last year, there is a strong divergence since 
mid-November ‘03. 

Analysts say it is a combination of factors, the elections as well as the 
pick-up in the rural economy. The currency in circulation is often seen to have 
a strong correlation with the level of rural economic activity, mainly 
agriculture, as rural India still largely prefers to transact in cash rather 
than through the banking system. Besides, the November pick-up is also 
attributed to the festive demand during the period, which was not seen in the 
corresponding period last year. However, there is no convincing explanation 
besides the Assembly elections, a time when the cash demand in the economy is 
seen to be high. 

The currency in circulation — that is, the money printed by the Reserve Bank of 
India — largely depends on the demand for money, which in turn depends on a 
number of factors like the level of economic activity, among others. Sources at 
the Reserve Bank of India said they are keeping a close watch to ensure that 
the trend does not have an untoward impact on the overall money supply growth 
and, in turn, start fuelling  inflation. 

A mismatch between the growth in money supply and the real sector could have 
inflationary impact, caused by too much money chasing too few goods in the 
market place. 

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