MUMBAI: The ratio of currency in circulation to GDP reached a new high of 14.5% for fiscal year 2020-21. The surge came as the pandemic increased demand for cash and depressed GDP.
At the same time, the rise of all forms of digital payments continues on the occasion of the fifth anniversary of demonetization – be it the Unified Payment Interface (UPI), credit cards and debit or FASTag – demonstrating that the digital switchover as well as the money intensity are not mutually exclusive.
The post-pandemic increase in currency in circulation has been a global phenomenon, described as a “dash to cash” under conditions of extreme uncertainty. This has been experienced by the United States, Spain, Italy, Germany, France, Brazil, Russia and Turkey.
Meanwhile, digital payments are nearly three times what they were in FY18. The Reserve Bank of India‘s Digital Payments Index, which has 2018 as its base year at 100, rose to 270. This index also captures the spread of digital, taking into account the growth of the payment infrastructure.
Of the four key demonetization goals, India appears to have done well out of three. There has been an increase in digital transactions. On top of that, there has also been a decline in fake currencies. Counterfeit banknotes detected continued to decline, dropping from 310,000 in FY19 to 290,000 in FY20 and 200,000 in FY21. There are also indications that the economy is increasingly formalized.
According to the chief economist of the SBI group, Soumya Kanti Ghosh, some indicators indicate that the informal economy has fallen to 20% of GDP, down from 40% a few years ago. It is comparable to Europe and much better than in Latin American countries where the size of the informal economy is estimated at 34%.


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