Liquidity assumed a different significance on Tuesday when at the post-policy press conference, Rajan talked about a sudden rise in cash circulation during the ongoing state elections.
Mentioning about the trend, the RBI governor said money in people’s hands went up by over Rs 60,000 crore and that it needs to be looked into. “Around election time, cash with the public does normally increase... You can guess as to reasons why, we can also guess,” the governor, known for his plain speaking, told reporters.
It is an open secret that during elections in India, political parties induce voters through gifts that typically include cash and liquor. “You see some (spike) not just in the states going to elections, but also in neighboring states. That is something... We need to understand it better,” said Rajan.
Election process is currently underway in Assam, West Bengal, Kerala, Tamil Nadu and the Union Territory of Puducherry. Out of these, Assam and West Bengal had the first phase of polling on Monday.
According to RBI data, there has been a 48% increase in currency in circulation at Rs 2 lakh crore for the fortnight ended March 18. Incidentally, during the same period, growth in bank deposits fell below 10%, to 9.9%, a 53-year low, while advances perked up.
“Deposit rates at 9.9% is not something that one must be sneezed at. This is a healthy growth trend,” Rajan said.