Demonetisation: Economy poorer by Rs 5.8 lakh crore on currency, reserves contraction

MUMBAI: The Indian economy has become poorer by Rs 5.8 lakh crore since November 8 because of decline in currency in circulation and the reserve money, shows data released by the Reserve Bank of India. Currency contraction because of demonetisation could squeeze the economy further as it could lead to payment delays and defaults, say experts.

The reserve money or the high-powered money, a bulk of which comprises currency in circulation and bank deposits with the Reserve Bank of India, contracted 12.4% or Rs 2.3 lakh crore for the week ended November 25. The currency in circulation alone dipped 16.8% or Rs 2.4 lakh crore during the week. For the period since November 8, the total contraction in currency is estimated to be Rs 5.8 lakh crore because of scapping of old Rs 500 and Rs 1,000 notes.

However, with RBI resortiong to a temporary measure of imposing a 100% cash reserve requirement on incremental deposits generated by banks since November 1, negative impact of currency contraction is likely to get neutralised.