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Demonetisation: Cash crunch to normalise by February 2017: Report

By Newsd
Updated on :

Over 75 per cent of the total value of scrapped notes is expected to be back in the system by January-end and complete normalcy is likely in next two months, says a report.

According to SBI’s research report Ecowrap, given the current phase of frantic printing, 50 per cent and 75 per cent of the total value of extinguished notes can be supplied by the end of December and January 2017, respectively.

“By the end of February, 78-88 per cent of the currency could be back in the system under the best case scenario in terms of an optimal currency distribution (more small denomination notes),” the report said, adding that “it seems within next 2 months things would be pretty close to normal”.

It, however, said states like Uttar Pradesh, Bihar Madhya Pradesh, Maharashtra, Andhra Pradesh, West Bengal, Punjab, Haryana and Gujarat, which are major agriculture-oriented cash dependent states, may face more issues during this cash crunch period.

As per the SBI research report, post demonetisation, there has been a 7 per cent jump in small denomination currency share in overall currency.

“It would enable money more as a medium of exchange and thereby getting accounted rather than as a store of value,” it said adding that this in turn would engineer a decisive behavioural shift in people preferences over time.
Sector-wise, agriculture is extremely cash sensitive and this segment can migrate only in a gradual manner to electronic modes.

The Government and the RBI should look carefully at the cumulative withdrawal (a proxy for cash requirement) to cumulative deposits ratio across states and wherever it may be low, they could re-orient the currency supply in such states, it added.