People May Have Been Holding Almost Rs3.3 Lakh Crore in Cash: SBI
Moneylife Digital Team 15 November 2021
Currency in circulation (CIC) has remained constant during Diwali week in 2021 even with record purchases. As per estimates by the State Bank of India (SBI), because of the COVID-19 pandemic, people may have been holding as much as Rs3.3 lakh crore in cash for a precautionary motive. The data implies currency to gross domestic product (GDP) ratio may have declined in recent times since the beginning of FY20-21. 
In a report, Dr Soumya Kanti Ghosh, group chief economic adviser of SBI, says, "After dipping to 8.7% of GDP post demonetisation, CIC as a percentage of GDP has climbed again. However, FY20-21 GDP collapsed owing to the pandemic and the effect is also evident in FY21-22 GDP. If we adjust for such currency transactions, the currency to GDP ratio for pure payment purposes may have actually declined in FY20-21 compared to earlier years."
According to SBI's economic research department, consumption is getting formalised through an increase in digital payments. Post-pandemic, the usage of credit and debit cards have increased significantly; even the per card transaction has increased substantially. 
"The per credit card transaction pre-pandemic was around Rs3,300, which has now increased to more than Rs4,000. It translates into Rs425 crore formalised through credit cards. Even the per debit card transactions are also increased from Rs1,400 (pre-pandemic) to Rs1,800 now. This indicates that some of the transactions paid by cash then are now paid by cards and translates to Rs36,00 crore formalised," the report says. 
While a total of Rs4,000 crore worth of consumption has been formalised through the usage of cards, SBI says, Indian consumers have now migrated big time to better technology platforms like unified payment interface (UPI) that does not require the intervention of a point of service (POS) machine and factor authentications.
Since the pandemic, the total transactions through UPI have jumped Rs4.3 lakh crore. According to the report, as many as 3.5 billion transactions worth Rs6.3 lakh crore were recorded through UPI in October 2021, making a jump of 100%, while transaction value jumped nearly 103% compared to that in October 2020.
Over the past four years, UPI transactions have jumped 70 times. SBI says, "Indian consumers now prefer convenience in payments through the click of a button. The vast quantity of information that is produced as a passive by-product of the use of such UPI transactions holds a great promise as a transformative resource for real-time policy and evidence-based policymaking."
SBI feels, as convenience in payments takes centre stage, the future will evolve increasingly towards the use of vast swaths of data through the use of artificial intelligence (AI) and machine learning (ML) by banks to redefine financial intermediation and this will imply further scaling up of significant investment in cloud platforms
"This might also necessitate regulatory interventions of both central banks and government so that database can be harnessed and stored and also used for real-time policymaking," Dr Ghosh from SBI says. 
The UK government has the power for requisition of telecommunication and related data for public policy purposes. A recent example is the UK government's power to request data to fight the public health emergency under the Corona Virus Act 2020. The Monetary Authority of Singapore enables setting up public cloud services to harness and analyse data by financial institutions.
According to SBI, India arguably has among the richest socio-economic digital data—be it data on payment transactions, telecom data, e-commerce data, and the like where many such traces can be captured. 
"In India, there exists a need for the government to access telecommunication and related data for evidence-based policy decisions. However, this needs to be balanced with the concerns of privacy. In this regard, reference may be drawn to Section 91 (2) of The Personal Data Protection Bill, 2019, which enables the Union government to inter alia requisition any personal data 'anonymised' or other non-personal data for formulation of evidence-based policies, in consultation with authority proposed to be set up under the bill," it says.
However, recording economic activity is always an issue where goods and services are produced by entities that are not recognised or registered with a government body. Some entities may still be registered, but their revenue or profits are below tax thresholds. So, their activity is not captured in administrative data. 
Likewise, activity performed by non-contractual labour also slips to the informal economy. However, SBI says that when a registered entity for tax evasion may under-report production or revenues, it is a compliance issue. 
As such the economic activity is not recorded due to data issues; digital footprint can solve the issue to an extent, while compliance-related slippage requires different solutions, SBI concludes.
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