Cash circulation at pre-note ban level due to Karnataka polls: Report

The Karnataka election and a rise in growth have led to the resurgence of cash getting back into the economy to the pre-note-ban levels, says a report.

"Increased demand for cash is likely due to factors such as a faster pick up in nominal activity and the upcoming election in Karnataka," Japanese brokerage Nomura said in a report today.

Making its disappointment clear, the brokerage said it had hoped if the economy would ever need cash at 12 per cent of GDP as was the case before the note ban.

The absence of cash hoarding and increased adoption of digital payments alternatives would have helped in reducing the cash component in the economy, but "current trends look to have belied those expectations", it said.

It said cash is becoming "king again", and the currency in circulation has risen fast to 11.3 per cent as of April, which is close to the pre-demonetisation steady state of 11.5-12 per cent of GDP.

The report said in 2017, the cash grew as part of the remonetisation exercise and then blamed the factors including Karnataka elections to the current rise. Karnataka goes to polls on May 12.

The report comes within a fortnight of the country experiencing a shortfall in cash, which has led the authorities to ramp-up the cash printing of certain denominations by five times.

Both RBI and government said the shortfall was temporary and in pockets, and attributed it to logistical issues being faced.

Besides the poll-bound Karnataka, other pockets where shortfall was reported included both Andhara, and Telengana, both in the vicinity of Karnataka, and also northern Bihar, Rajasthan, Gujarat, MP. Chhattisgarh, and Punjab.

Initial reports had said the shortfall was apparently on apprehensions about safety of deposits due to recent spurt in banking frauds.