Mumbai: Despite a lot of government effort to switch to digital payments and usher in a digital payment economy, the currency in circulation has jumped by a hefty 17% to Rs 21.10 lakh crore as of March 2019, the Reserve Bank says in its annual report for 2019.
The demand for the Rs 500 bill, which is the second highest denomination after the Rs 2,000 note, has soared the highest and now accounts for over 51% of the value of currency in circulation, says the report released on Thursday. “The value and volume of banknotes in circulation increased by 17% and 6.2% to Rs 21.10 lakh crore and 1,08,759 million pieces, respectively, in FY19,” the report says, showing that digital payments are still not quite popular among the people.
One of the objectives of demonetisation of 8 November 2016 was rendering as much as 86% of the outstanding bill useless, which had a crippling impact on the economy as a whole, was to encourage digital payments and bring down the use of cash. However, the people returned as much as 99.8% of the cancelled notes back into the system, leading many voices to question the rationale for the very exercise itself.
At the same time, another interpretation of the development is that the return proved the government point that the hoarders of cash were left with no option other than returning the notes of denominations Rs 500 and Rs 1,000. This view holds further that the return of this cash to the mainstream economy should be welcomed. Further, digital payment modes like UPI (bank-to-bank transfer of funds) and digital payment companies like PayTM and Google Pay have been doing brisk business since then.
PayTM, India’s largest digital financial services provider, has seen its valuation more than double in the past two years from $ 7 billion in 2017 when Japan’s Softbank Vision Fund came on board. ESOPs worth $150 million were sold by Paytm’s employees to New York-based investors nearly three months back valuing the company at $15 billion, compared to $12 billion last year when Berkshire Hathaway had come on board.
Google Pay has already made inroads into smaller towns and two-third of its business in India is coming from such markets.
Google Pay currently has over 3,000 online merchants including Zomato, BookMyShow, Swiggy, RedBus and others in its kitty and is accepted at over 200,000 offline stores across 3,500 towns and cities.
The RBI annual report notes a 59% increase in retail electronic payment transactions to 23.3 billion.
The share of the Rs 500 bill stood at 42% as of end June 2018, while the same for the Rs 2,000 notes, declined in value to Rs 6.58 lakh crore as of March 2019. However, the combined basis, the share of the high value Rs 500 and Rs 2,000 bills was almost stable at 82%.
Now comes another benefit of demonetisation. There was a sharp fall in the instance of fake currency detections in FY19 to 3.17 lakh pieces down from 5.22 lakh in FY18 and 7.62 lakh in FY17, the RBI says.
The RBI’s note printing cost has come down marginally to Rs 4,811 crore in FY19 from Rs 4,912 crore in FY18, reflecting normalisation in operations post-demonetisation.
The report says after disposing the demonetised notes, the efforts are now on disposing off the soiled notes of smaller denominations which have piled up. However, over 21,000 fake pieces each of the newly introduced Rs 500 and Rs 2,000 notes were found in the reporting year.
The Reserve Bank will introduce varnished banknotes of Rs 100 denomination on a field trial basis to increase the life of the banknotes and also look at ways to make them disabled-friendly in FY20.