Consumers are on a roll; currency spins 18% y-o-y
Cash in the economy is growing at a much faster pace than in previous years. However, the unusual aspect is that there’s no ostensible reason for the rise.
By Gayatri Nayak, TNN |
MUMBAI: Cash in the economy is growing at a much faster pace than in previous years. However, the unusual aspect is that there’s no ostensible reason for the rise. Moreover, the usual triggers like elections, festivals or a bumper harvest are also not working as primary factors.
According to RBI data, total currency in circulation rose to Rs 23,936 crore between April and mid-August ’06 as against Rs 15,711 crore in the same period last year. On a year-on-year basis, the growth works out to be Rs 70,239 crore (18.3%), one of the highest in the recent past, as against Rs 47,985 crore (14.3%) a year ago.
This part of money is outside the banking system, and tends to rise when the cash spending in the economy is high, like at the time of Assembly or parliamentary elections in many parts of the country, or during festivals.
This is largely reflective of strong consumer spending as is evident in a higher growth in consumer durable index in the index of industrial production (IIP) during April-June’06, which went up 16.5% as against 15.3% in the same period a year ago, according to an economist with a large corporate house.
Production of many items like washing machines, refrigerators, electric fans, TV sets and bicycles is much higher in April this year than in the same period last year. Even segments of the automobile industry like passenger cars and two-wheelers have recorded a higher growth in sales this year. And the trend also corroborates the popular theory of a consumption-led growth in the country.
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According to sources, this is a reflective of broad-based growth across sectors industry as well as agriculture. Though the economy was any way expected to do well, the outlook on agriculture is expected to be much better than what is originally anticipated in the credit policy. With the onset of festivities from Ganesh Chaturthi till Diwali, yet to get reflected in the figures the currency in circulation is expected to remain strong for quite some time, at least until RBI comes out with its mid-term review of the economy and monetary policy on October 31.
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