{"id":58807,"date":"2025-11-10T20:32:08","date_gmt":"2025-11-10T15:02:08","guid":{"rendered":"https:\/\/www.nextias.com\/ca\/?p=58807"},"modified":"2025-11-11T12:27:34","modified_gmt":"2025-11-11T06:57:34","slug":"nine-years-after-demonetisation","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/10-11-2025\/nine-years-after-demonetisation","title":{"rendered":"Nine Years After Demonetisation"},"content":{"rendered":"\n<p><strong>Syllabus: GS3\/Economy<\/strong><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Context<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Currency with the public<\/strong> has <strong>more than doubled <\/strong>since the<strong> demonetisation in 2016<\/strong> was announced by the government.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Demonetisation<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The Prime Minister announced demonetisation on <strong>November 8, 2016.<\/strong><\/li>\n\n\n\n<li>It declared that <strong>all existing Rs 500 and Rs 1,000 notes <\/strong>which together accounted for about <strong>86% of the currency<\/strong> in circulation would cease to be legal tender.&nbsp;<\/li>\n\n\n\n<li>Demonetisation in 2016 was apparently intended <strong>to eliminate black money,<\/strong> <strong>curb counterfeit currency, promote digital payments and formalise the economy.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Currency with Public<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Currency with the public is arrived at after <strong>deducting cash with banks from total currency in circulation (CIC).&nbsp;<\/strong>\n<ul class=\"wp-block-list\">\n<li><strong>CIC refers to<\/strong> currency notes and coins issued by the central bank within a country that is physically used to conduct transactions between<strong> consumers and businesses.&nbsp;<\/strong><\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>Nine years after demonetisation the public currency remains high<\/strong>, although the government and the RBI have pushed for a<strong> less cash society.<\/strong><\/li>\n\n\n\n<li>However, the<strong> size of the economy also expanded<\/strong> with a<strong> 6% plus growth<\/strong> every year, bringing the <strong>currency in circulation to GDP ratio below the pre-demonetisation level.<\/strong><\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Does Rise in Currency Show the Real Picture?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>The rise in currency in circulation in absolute numbers <strong>is not the reflection of reality<\/strong> as <strong>GDP growth has remained strong <\/strong>and even touched 7.8% in the first quarter of FY2026.&nbsp;<\/li>\n\n\n\n<li>Since demonetisation in 2016, currency in circulation has risen steadily every year, with the CIC to GDP ratio having surged to<strong> 14.5% in 2020-21 from 8.7% in 2016-17.&nbsp;<\/strong>\n<ul class=\"wp-block-list\">\n<li>The ratio has now come down to <strong>11.11% in 2025<\/strong> from 12.1% in March 2016.&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li><strong>A high CIC-to-GDP ratio indicates<\/strong> that people and <strong>businesses rely heavily on cash for transactions,<\/strong> while a<strong> lower ratio reflects<\/strong> a <strong>shift towards digital payments<\/strong>, banking channels and formal financial systems.<\/li>\n\n\n\n<li><strong>A lower CIC-to-GDP ratio,<\/strong> driven by increased digitalization and reduced reliance on cash, generally enables smoother monetary policy transmission and better inflation control.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>CIC-GDP Ratio of India compared to Other Countries?<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>After the demonetisation and the Covid period, though India\u2019s currency to GDP ratio has improved, <strong>it\u2019s higher than other major economies.&nbsp;<\/strong><\/li>\n\n\n\n<li>Japan has a ratio of 9-11%, Eurozone 8-10% and China 9.5%.\n<ul class=\"wp-block-list\">\n<li>Russia has a lower ratio of 8.3% and the US 7.96% .&nbsp;<\/li>\n<\/ul>\n<\/li>\n\n\n\n<li>India\u2019s elevated currency-to-GDP ratio of <strong>11.11% stems from<\/strong> its sizable cash-dependent informal economy, a strong cultural preference for holding cash, limited card usage and comparatively lower adoption.<\/li>\n\n\n\n<li>At the same time <strong>India is also picking up fast digital payment systems<\/strong>, in contrast to the highly formalized and digitalised economies of the US, Eurozone, China and Russia.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>India\u2019s Money Supply Dynamics: Demonetisation to Digitisation<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Demonetisation (2016) triggered a short-term demand shock<\/strong>: MSME stress, job losses, and liquidity shortage. GDP growth briefly dipped below 6%.<\/li>\n\n\n\n<li><strong>Digitisation surge:<\/strong> Post-2016, UPI transactions crossed \u20b920 lakh crore\/month (2025), expanding deep into Tier-2\/3 towns, signalling substitution from cash for retail payments.<\/li>\n\n\n\n<li><strong>Currency-to-GDP ratio: <\/strong>Fell from 12% in 2016 to around 10.5% in 2024, implying lower cash intensity though still above advanced economies due to a large informal sector.<\/li>\n<\/ul>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-background\" style=\"background-color:#ebecf0\"><tbody><tr><td><strong>RBI\u2019s Measures of Money Supply<\/strong><br>&#8211; Introduced in April 1977, the RBI classifies money supply into four aggregates \u2014 <strong>M1, M2, M3, and M4<\/strong> \u2014 arranged by decreasing liquidity.<br>1. M1 (Narrow Money): Currency with the public + Demand deposits with banks (excluding inter-bank) + Other deposits with RBI.<br>2. M2: M1 + Post Office Savings Bank deposits.<br>3. M3 (Broad Money): M1 + Time deposits with commercial and cooperative banks.<br>4. M4: M3 + All Post Office deposits (both time and demand).<br><img data-dominant-color=\"d9dee8\" data-has-transparency=\"false\" loading=\"lazy\" decoding=\"async\" width=\"450\" height=\"174\" class=\"not-transparent wp-image-58855\" style=\"--dominant-color: #d9dee8; width: 450px;\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Money-Supply.webp\" alt=\"\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Money-Supply.webp 1397w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Money-Supply-300x116.webp 300w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Money-Supply-1024x397.webp 1024w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Money-Supply-768x297.webp 768w\" sizes=\"auto, (max-width: 450px) 100vw, 450px\" \/><br><br>&#8211; <strong>Policy Use: <\/strong>Among these, M3 is the principal measure used by the RBI for monetary targeting and macroeconomic assessment, as recommended by the <strong>Chakravarty Committee (1982\u201385).<\/strong><br><strong>Why M3 Matters?<\/strong><br>&#8211; It captures both currency and deposits that influence spending, saving, and credit creation.<br>&#8211; It is more stable and reliable for medium-term policy analysis compared to narrower measures.<br>&#8211; It reflects liquidity conditions affecting bank balance sheets and credit transmission.<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><strong>Digital Economy in India<\/strong><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Post Demonitisation, the digital economy is growing fast, contributing <strong>11.74%<\/strong> to the national income in 2022\u201323 and expected to reach <strong>13.42% by 2024\u201325.&nbsp;<\/strong><\/li>\n\n\n\n<li>According to the State of India\u2019s Digital Economy Report 2024, released by ICRIER, India now ranks<strong> third in the world for digitalisation of the economy.&nbsp;<\/strong><\/li>\n\n\n\n<li><strong>By 2030,<\/strong> India\u2019s digital economy is projected to contribute nearly<strong> one-fifth of the country\u2019s overall economy, <\/strong>outpacing the growth of traditional sectors.<\/li>\n<\/ul>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><img data-dominant-color=\"e3e6e8\" data-has-transparency=\"false\" style=\"--dominant-color: #e3e6e8;\" loading=\"lazy\" decoding=\"async\" width=\"599\" height=\"434\" src=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Digital-Economy-in-India.webp\" alt=\"digital india journey\" class=\"not-transparent wp-image-58857\" srcset=\"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Digital-Economy-in-India.webp 599w, https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2025\/11\/Digital-Economy-in-India-300x217.webp 300w\" sizes=\"auto, (max-width: 599px) 100vw, 599px\" \/><\/figure>\n<\/div>\n\n\n<p><strong>Source: <\/strong><a href=\"https:\/\/indianexpress.com\/article\/business\/banking-and-finance\/nine-years-after-demonetisation-why-currency-with-public-remains-high-10356027\/\" target=\"_blank\" rel=\"noopener\"><strong>IE<\/strong><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p><strong>Context<\/strong><\/p>\n<li class=\"ms-5\">Currency with the public has more than doubled since the demonetisation in 2016 was announced by the government.\u00a0<\/li>\n<p><\/p>\n<p><strong>Demonetisation<\/strong><\/p>\n<li class=\"ms-5\">The Prime Minister announced demonetisation on November 8, 2016.<\/li>\n<li class=\"ms-5\">It declared that all existing Rs 500 and Rs 1,000 notes which together accounted for about 86% of the currency in circulation would cease to be legal tender.\u00a0<\/li>\n<li class=\"ms-5\">Demonetisation in 2016 was apparently intended to eliminate black money, curb counterfeit currency, promote digital payments and formalise the economy.<\/li>\n<p><a href=\"https:\/\/www.nextias.com\/ca\/current-affairs\/10-11-2025\/nine-years-after-demonetisation\" class=\"btn btn-primary btn-sm float-end\">Read\u00a0More<\/a><\/p>\n","protected":false},"author":15,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[],"class_list":["post-58807","post","type-post","status-publish","format-standard","hentry","category-current-affairs"],"acf":[],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/58807","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/15"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=58807"}],"version-history":[{"count":4,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/58807\/revisions"}],"predecessor-version":[{"id":58883,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/58807\/revisions\/58883"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=58807"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=58807"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=58807"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}