Dash for cash

Higher cash usage in India is because of a combination of factors—the parallel economy, a large informal sector, high inflation and rising rural wages


Photo: Pradeep Gaur/Mint
Photo: Pradeep Gaur/Mint

The Narendra Modi government has boldly moved against black money hoarded in Rs500 and Rs1,000 denominations. The gambit works against illegal wealth rather than illegal income—the stock rather than the flow.

More needs to be done to prevent the future generation of illegal wealth. One problem is the overuse of cash in economic transactions. The ratio of cash to gross domestic product in India is far higher than other comparable countries. It has actually gone up from 10.95% in 2000 to 12.42% in 2014, according to the Reserve Bank of India. It peaked at 13.10% in 2010.

Or consider another bit of data. India had 76.47 billion pieces of currency in circulation in the fiscal year ended March 2013. The US had around half that number—despite having a much larger economy. Higher cash usage in India is because of a combination of factors—the parallel economy, a large informal sector, high inflation and rising rural wages. However, Modi has done well to begin the battle.

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