As Covid second wave rages, people hold more cash, spend less

Indians seem to be holding on to cash but spending less amidst the second wave of the Covid-19 pandemic that has led to localised lockdowns by States and a resurgence of economic uncertainty.

Cash in circulation has been rising steadily since April 9 this year and has risen to a record ₹29,57,854 crore as on May 14, according to Reserve Bank of India data.

This is a jump of ₹17,856 crore on a weekly basis since May 7 and ₹99,214 crore in the financial year to date.

Currency in circulation has been on the rise since March 19 when it was at ₹28,49,641 crore. The rise of currency in circulation so far this fiscal year is 14.2 per cent.

Bankers point out that the rise in cash withdrawals is common during any period of uncertainty when people tend to hoard cash.

“It’s a common enough phenomenon. Everyone wants to keep some cash handy at home in case of a medical emergency and also to ensure that they do not have to step out unnecessarily to withdraw cash during the lockdowns,” a banker said.

Digital payments decline

Meanwhile, recent data on credit cards and digital payments indicate that spends were on a decline once again.

In the fourth quarter of 2020-21, the credit card industry grew by four per cent in terms of spends on a sequential basis and three per cent in Cards in Force (CIF), according to the Credit Card Business Monitor by Axis Securities. The business volumes de-grew by six per cent in the fourth quarter on a year on year basis as Point of Sale spends remained impacted.

“Given the challenges posed by Covid 2.0, we expect the spends, new sourcing, and business volumes to remain impacted in the near term,” it said.

Data from the National Payments Corporation of India showed that the value and volume of digital payments too had fallen in April compared to March.

Transactions on the Unified Payments Interface (UPI) fell from the peak of ₹5.04 lakh crore in March to ₹4.93 lakh crore in April . The number of transactions was also lower at 264 crore in April versus 273 crore in March.

Similarly, the IMPS processed 32.29 crore transactions worth ₹2.99 lakh crore in April compared to 36.31 crore transactions of ₹3.27 lakh crore in March.

Precautionary motive

“Cash in circulation is primarily used for transaction and precautionary purposes. Precautionary motive is to hoard currency at home for emergency expenditure like hospitalisation or medicines. Cash in circulation has increased since last year and will get more momentum this year due to the second wave of Covid,” said Madan Sabnavis, Chief Economist, Care Ratings, adding that digital payments will slowly recover as discretionary spends come back but will rise at a slower pace.

The Reserve Bank of India, in its Annual Report 2020-21, said banknotes in circulation witnessed higher than average increase during 2020-21 due to precautionary holding of cash by people on account of the Covid-19 pandemic, and its prolonged continuance.

The value and volume of banknotes in circulation increased by 16.8 per cent and 7.2 per cent, respectively during 2020-21, against an increase of 14.7 per cent and 6.6 per cent respectively, witnessed during 2019-20, the report said.

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