Public cash in Indian banking system soars during election time

LAHORE: Just a month or so ahead of the forthcoming May 16 elections in the Indian states of Tamil Nadu, Kerala and Puducherry, and right during the recently-held ballot exercise in Assam and West Bengal, the country's banking system has witnessed an unexplainable increase in public cash, which has even left the Reserve Bank Governor guessing and searching for answers.

According to a recent report of Bloomberg, a privately held financial software, data and media company headquartered in New York, more than anticipated public cash ranging between $7.5 billion to $9 billion has somehow made its way into the Indian banking system.

It quoted the Indian Central Bank Chief Raghuram Rajan as viewing: "We're trying to understand it. Around election time, cash with the public does increase. You can guess as to reasons why. We also guess. And you see some not just in the state which is going for elections, but also in neighboring states."

"Bloomberg" has observed: "What's puzzling is that the increase is more than the economy is growing or prices are rising. More worryingly, it may be contributing to a slowdown in the rise in bank deposits, which is adding to tight liquidity. 

In its April 11 report, the American media house said: "Elections took place late last year in Bihar, one of the country's poorest states. Voters in five more states will go to the polls this month and next. At 229 million people, the population of just those five states is bigger than Brazil's."

"Bloomberg" also quoted the 2014 report of N. Bhaskara Rao, chairman of the New Delhi-based Centre for Media Studies, in which he had opined that money for votes was a common practice, as was the handing out of gifts.

It added: "The Election Commissioner said he had contacted the central bank for more information about the issue, the Press Trust of India had reported last week. Soumya Kanti Ghosh, the chief economist at State Bank of India, said that while the ballots may have been a small influence, a similar increase did not occur before the general election of 2014. His theory is no less intriguing. There's been talk of removing the bigger bank notes from circulation, due in part to a clampdown on black money."