Rs 2000 notes cleanup: How the demise of the pink notes is set to supercharge India's economy

 SBI Research in a report analysed and argued how the withdrawal of Rs 2000 banknotes could boost bank deposits, repayment of loans, consumption, RBI's retail digital currency usage, and overall economic growth. Adding to the Rs 2000 banknote deposits, some of the sectors -- Refinery, Oil and Gas, Power, and Chemicals -- which reported improved cash and bank balance, according to the report, are believed to be more active in parking funds with banks. In what may be a consolation to the worried citizens of the country, the Reserve Bank ofIndia's decision to withdraw Rs 2,000 banknotes from circulation may boost various macroeconomic parameters of India, as per an SBI Research report. SBI Research in a report analysed and argued how the withdrawal of Rs 2000 banknotes could boost bank deposits, repayment of loans, consumption, RBI's retail digital currency usage, and overall economic growth, as per ANI. In its latest Ecowrap report, authored by Group Chief Economic Adviser Soumya Kanti Ghosh, the report has argued that one of the other major benefits of withdrawal of Rs 2000 note might be the immediate uptick in consumption demand. As per estimates, the consumption demand may be frontloaded by Rs 55,000 crore. "With the banknote remaining a legal tender, unlike demonetization, consumption could see a boost. Though, RBI asked customers to deposit or exchange the Rs 2000 notes, but it is expected that high-value amounts could move to high-value spends such as gold/jewellery, high-end consumer durables like AC, mobile phones etc, and real estate," the report said. Cash value transactions at energy stations, cash on delivery for purchases, donations in temples, and various sundry purchases are also likely to rise, it argued. 

It has also argued that deposits are likely to increase. "Though some amount would be withdrawn following the deposit, but going by the current trends, CASA deposits are likely to increase (Rs 1.5 lakh crore) due to this measure," the SBI Research report said. The report, citing All Scheduled Commercial Bank (ASCB) data, said it shows that there has been an increase in total deposits of Rs 3.3 lakh crore during the fortnight ended Jun 2, 2023. "The average increase in deposits during the same fortnight in the last two years was around Rs 1.5 lakh crore. Thus, taking that also into account, banks may have received additional deposits of around Rs 1.8 lakh crore during the fortnight this year. It seems Corporates, flush with in-hand liquidity, are parking the additional funds with Banks," the report added. Adding to the Rs 2000 banknote deposits, some of the sectors -- Refinery, Oil and Gas, Power, and Chemicals -- which reported improved cash and bank balance, according to the report, are believed to be more active in parking funds with banks. On the credit front, as per SBI Research's assessment, 30 per cent of deposits (or Rs 92,000 crore) might go for loan payment and argued that credit growth continues to remain quite strong despite repayments getting frontloaded. The total value of these Rs 2000 banknotes in circulation had declined from Rs 6.73 lakh crore at its peak of March 31, 2018 (37.3 per cent of Notes in Circulation) to Rs 3.62 lakh crore constituting only 10.8 per cent of Notes in Circulation on March 31, 2023. It was also observed that this denomination was not commonly used for transactions. The RBI last month announced the withdrawal of Rs 2000 denomination banknotes as part of its currency management.