₹2000 note withdrawal to boost consumption: SBI

One of the major benefits of the withdrawal of ₹2000 notes might be the immediate uptick in consumption demand, according to SBI Research.

With the banknote remaining a legal tender, unlike demonetisation, consumption could see a boost, Soumya Kanti Ghosh, group chief economic adviser, State Bank of India, writes in a report.

"As per our estimate consumption demand may be frontloaded by Rs 55,000 crore," Ghosh says.

Though the RBI asked customers to deposit or exchange the ₹2000 notes, 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 says.

According to the report, cash transactions have sharply risen at petrol pumps, and cash-paying customers are using ₹2,000 notes. All-India Petroleum Dealers Association (AIPDA) has said that the digital payments, which used to be around 40% of daily sales at pumps, have dropped to around 10% while cash sales have increased dramatically, the report says.

"People have also started ordering items online with the cash-on-delivery option. It is reported that nearly 75% of Zomato's users opting for cash-on-delivery have been paying with ₹2,000 notes. Ecommerce, food and online grocery segments are likely to witness an increase in customers opting for cash on delivery," writes Ghosh.

The report further says that donations through ₹2000 notes are expected to increase in temples and other religious institutions.

SBI Research expects Q1 FY24 GDP growth at around 8.1% with an upward bias due to the impact of ₹2000 note withdrawal. "This reinforces our projection that FY24 GDP could be higher than 6.5%, basis the RBI estimate," it says.

There will not be much impact on the liquidity owing to the withdrawal of ₹2000 notes, as the amount deposited with the banks would be withdrawn in smaller denominations later, writes Ghosh.

This comes days after RBI governor Shaktikanta Das said that ₹2000 currency notes worth ₹1.8 lakh crore – or about 50% of the total value of such notes in circulation – have come back to the banking system. The value of ₹2000 banknotes in circulation stood at ₹3.62 lakh crore as on March 31, 2023.

Responding to a question on how much of it constituted exchange, Das said that figure needs a lot of reconciliation. "On a provisional basis, about 85% of ₹2000 notes are coming back as deposits into bank accounts," Das said, adding that this is in line with RBI's expectations.

On May 19, the banking regulator withdrew ₹2000 denomination notes from circulation, saying they are "at the end of their estimated life-span of 4-5 years" and "not commonly used for transactions". Even as ₹2000 denomination notes continue to be legal tender, the central bank urged members of the public to deposit such notes into their bank accounts or exchange them into banknotes of other denominations at any bank branch. ₹2000 notes can be exchanged into other denominations up to a limit of ₹20,000 at a time at any bank.

The exercise to exchange or deposit ₹2000 currency notes began on May 23 and will go on till September 30, 2023. Das urged customers to avoid the last-minute rush in the last 10-15 days of September.