Source: IE
Context:
Since the demonetisation of ₹500 and ₹1,000 notes in November 2016, India has seen a significant rise in currency with the public (CWP), reflecting cash usage in the economy.
Demonetisation Overview
- Date: Announced on 8 November 2016 by PM Narendra Modi.
- Action: ₹500 and ₹1,000 notes ceased to be legal tender from 9 November 2016.
- Objectives:
- Curb black money
- Combat counterfeit currency
- Promote digital payments
- Formalise the economy
Immediate Impact:
- CWP fell from ₹17.97 lakh crore (Nov 2016) to ₹7.8 lakh crore (Jan 2017).
- Economy faced temporary demand slowdown; GDP growth dipped by ~1.5%.
- Small businesses experienced liquidity crises.
Definition
- Currency with Public (CWP): Total currency in circulation minus cash with banks.
- Currency in Circulation (CIC): Physical currency notes and coins issued by RBI used for transactions.
Currency-to-GDP Ratio
- Indicates cash dependency in the economy.
- Trends:
- 2016-17: 8.7%
- Peak 2020-21: 14.5% (COVID cash surge)
- Oct 2025: 11.11%
- Implication: Lower ratio reflects increased digital payments and formal financial system usage, aiding monetary policy transmission and inflation control.
Comparison with Other Economies
| Country | Currency-to-GDP Ratio |
|---|---|
| India | 11.11% |
| Japan | 9–11% |
| Eurozone | 8–10% |
| China | 9.5% |
| Russia | 8.3% |
| USA | 7.96% |
Reason for India’s higher ratio:
- Large informal economy
- Cultural preference for cash
- Gradual adoption of digital payments
