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India is Experiencing a Massive Cash Surge of More Than Rs 60,000 Crore During Election Period

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(Credit: Stephen Jaffe/IMF via Getty Images) SINGAPORE - SEPTEMBER 14: In this handout photo from the IMF, International Monetary Fund's Economic Counsellor and Research Department Director Raghuram Rajan addresses a press conference at the Civil Society Forum at Suntec Covention Center September 14, 2006 in Singapore. The IMF and the World Bank are meeting with CSO representatives, government officials and others to discuss important issues.
World Economic Outlook
April 11
7:11 AM 2016

India is seeing a massive spike in cash circulation during the election period. The cash with the public has gone up by over Rs 60,000 crore (about $9 billion) around the election time. The country's central bank considered the cash surge "not normal" and is looking into the phenomenon. 

Bloomberg elaborated why the surge in the public cash is puzzling. The spike is more than the economy is growing or prices are rising. It has also brought more concern that the massive cash increase may be contributing to a slowdown of rise in bank deposits. In turn, that could add to tight liquidity.

In fact, the bank deposits growth immediately fell below 10 percent, to 9.9 percent, as reported by The Economic Times. The fall represented a point of the country's 53-year low. The drop in bank deposits growth happened after the country's central bank, RBI, analyzed the data that show a 48 percent increase in the currency circulation at Rs 2 trillion for the fortnight ended March 18.

India's central bank Governor Raghuram Rajan stated the bank's concern regarding the cash massive surge. Mr. Rajan addressed the issue after announcing his first monetary policy review of this fiscal year. "Around election time, cash with the public does normally increase. You can guess as to reasons why, we can also guess," he noted. 

Furthermore, Mr. Rajan acknowledged that the spike in the cash with the public this time is not normal. "You see some spike in just in the state going to elections, but also in neighbouring states. There is something. We need to understand it better," he added.

One factor that is believed to hugely contribute to the cash surge is connected with the election itself. The chairman of India's Centre for Media Studies N. Bhaskara told Bloomberg that money for votes is a common practice. During the election time, it's typical for politicians to hand out gifts or cash for votes.

Other factors also include huge spendings as legitimate campaign expenses such as paying people to go campaigning, and media advertisings. However, as for now there are only theories, since the country's economists have not come up with a definite explanation.

A report quoted by India Times says that about 60 percent of the electorate would get cash varying from Rs 2,000 to Rs 3,000 from various parties during the election time, according to a top Tamil Nadu government official. For a 5.8 crore voting population, the amount adds up to Rs 6,000 crore to Rs 9,000 crore as gifts just before the polling day.

During the ongoing state elections time in India, the government has noticed a massive surge in the cash with the public. While it's believed that election spending and gifts is the main factor to the cash surge, the country's central bank is looking into the issue for a definite explanation.

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