Withdrawal of Rs 2000 note: SBI sees boost in consumption demand

SBI’s economic research wing said high-value spending on jewellery, high-end consumer durables like AC, mobile phones, and real estate had increased

File photo of a man standing in front of SBI (State Bank Of India) logo (photo: Getty Images)
File photo of a man standing in front of SBI (State Bank Of India) logo (photo: Getty Images)

Aditya Anand

On Monday, a report by the State Bank of India's Economic Research Department indicated that one of the significant advantages of the Centre's decision to withdraw the Rs 2,000 currency note could be an immediate boost in consumption demand.

The report prepared under the guidance of Dr. Soumya Kanti Ghosh, Group Chief Economic Adviser, State Bank of India (SBI) said, "As per our estimate, consumption demand may be frontloaded by Rs 55,000 crore. Consumption could be boosted with the banknote remaining a legal tender, unlike demonetisation. Though RBI asked customers to deposit or exchange the Rs 2,000 notes, high-value amounts are expected to move towards high-value spends such as gold/jewellery, high-end consumer durables like AC, mobile phones, and real estate."

The impact of this decision is already noticeable in various sectors, SBI said. Cash transactions at petrol pumps have witnessed a sharp rise, with cash-paying customers predominantly using Rs 2,000 notes.

The All-India Petroleum Dealers Association (AIPDA) has reported that digital payments, which used to account for 40% of daily sales at pumps, have declined to 10%. In contrast, cash sales have experienced a significant surge.

Furthermore, the popularity of cash-on-delivery options for online orders has surged. Approximately 75% of users opting for cash-on-delivery on the online food delivery aggregator Zomato have used Rs 2,000 notes for payment.

The report anticipates that sectors like e-commerce, food delivery, and online grocery services will witness an increase in customers opting for cash on delivery. The report also suggested an upswing in donations made through Rs 2,000 notes to temples and religious institutions and sundry purchases such as consumer durables and boutique furniture.

The SBI projected that around Rs 55,000 crore could be withdrawn by the public from the cumulative Rs 92,000 crore saving bank deposits made through Rs 2,000 notes. This infusion of liquidity is expected to provide a consumption boost and increase the velocity of money circulation.

The report commented on the potential impact: "Considering the MPC of this Rs 55,000 crore at 0.7, we believe that the Private Final Consumption Expenditure (PFCE) might increase by Rs 1.83 lakh crore through the multiplier effect. Considering that the ratio of PFCE to GDP at constant prices is around 58%, we may expect Q1 FY24 GDP growth at 8.1% with an upward bias due to the impact of this Rs 2,000 note withdrawal event. This reinforces our projection that FY24 GDP could be higher than 6.5%, per the RBI estimate."

The withdrawal of the Rs 2,000 currency note is anticipated to have far-reaching implications on the economy, potentially fuelling consumption and influencing GDP growth. “With various sectors experiencing the effects of this decision, its full impact on India's economic landscape remains to be seen,” the report said.

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