The Deposit Figure Of Over Rs 11 Lakh Crore Is Incorrect. Here’s What The RBI Data Says.

The Indian Express ran a story titled ‘Demonetisation’s rude shock: There may not be any black money’ recently. The report, attributed to IANS, was carried by many other news portals as well. Quoting from the Rajya Sabha reply of the Minister of State for Finance, Arjun Ram Meghwal, the report said the high-denomination currency circulating in the system on the day of Prime Minister Narendra Modi’s historic announcement was Rs 15.44 lakh crore.

Quoting the Reserve Bank of India (RBI), the report said Rs 8.45 lakh crore (in old Rs 500 and Rs 1,000 currency notes) was already mopped up by the banks from its depositors.

The report also went on to claim that the total cash reserve ratio (amounting to Rs 4.06 lakh crore) as on 8 November was the amount already held by banks and, thus, part of the total currency in circulation.

Then, it dropped a bombshell, questioning the demonetisation drive in view of the total value of Rs 12.50 lakh crore already finding its way into the banking system.

However, the figures from the report are incorrect.

Every Friday, the RBI releases its Weekly Statistical Supplement (WSS) report, detailing its weekly operations under 14 tabulated reports. The most recent report available in the public domain is that from 25 November 2016, and the report for the current week is due today. These reports capture the data for the week prior to the release of the report.

Now, refer to Table 7 in the report. It captures the information on reserve money (M0), its components and sources. Reserve money (M0) is the ‘base money’ and the highly liquid component of money stock in the economy. It plays the most crucial role in the determination of other monetary aggregates of the economy.

At any given point in time, the reserve money (M0) equation (its components) is as follows:

Reserve money = Notes in circulation + Bankers’ deposits with the RBI + Other deposits with the RBI

Notes in circulation represent the currency in circulation in the form of notes and coins, while bankers’ deposits with the RBI represent balances maintained by banks in the current account with the RBI, mainly for maintaining the CRR and as working funds for clearing adjustments.

The final component of reserve money is other deposits with the RBI and this includes deposits from foreign central banks, multilateral institutions, financial institutions and sundry deposits net of IMF Account No 1.

A tabulated compilation of movement in reserve money (M0) per WSS bulletins of the RBI is as below:

From the table, it can be seen that the total currency in circulation as on 18 November was Rs 14.27 lakh crore - a decline of Rs 3.70 lakh crore (20.61 per cent) over the figures from 4 November.

Another significant takeaway from the tabulated data is that bankers’ deposits with the RBI for CRR (as claimed in the IANS report) as the currency already in circulation is not counted as currency in circulation and is in fact a separate line item.

If one were to take into account the RBI figure of Rs 8.45 lakh crore as mopped up by banks till 28 November as the old notes tendered for cancellation, almost Rs 6.99 lakh crore (45.27 per cent of total) is yet to be deposited.

In view of this explanation, it is important to stress on the need to form opinions only on the basis of RBI bulletins and press releases. There are far too many people who would want to write the obituary of demonetisation. Believing motivated reports would be playing into their hands.