Cash spending during elections 22 per cent higher this time

Political parties likely spent more cash despite push on digital transactions during the latest Lok Sabha elections.

Incremental currency in circulation since the election commission announced the election date in March till the last phase of election at Rs 89,080 crore as of June 7 was 22 percent higher than Rs 72,680 crore in the same period of 2019 elections. This could be probably due to the impact of COVID related disruptions and the surge in inflation over the five year period.

Currency in circulation amounted to Rs 35.87 lakh crore as of June 07, 2024, reflecting the data of the period when the last phase of election ended, according to the latest data released by the Reserve Bank of India on Wednesday compared to Rs 34.98 lakh crore as of March 15, a day before election date was announced.

The surge in currency in circulation is significant despite the withdrawal of Rs 2000 note earlier in May 2023 . The growth in currency in circulation, the major constituent of reserve money with a share of 75.1 per cent – decelerated to 4.1 per cent during 2023-24 from 7.8 per cent a year ago, due to the withdrawal of Rs 2000 banknotes, RBi’s latest Annual Report said.

Reserve Bank studies in the past have shown a strong link between election spending and sure in currency in circulation. But this link is weakening due to the surge in digital transactions. “ This could largely reflect the higher cost of managing election funding as inflation has risen faster compared to earlier few elections” said an economist with a private bank, requesting anonymity.

The currency-GDP ratio has moderated with the ebbing of pandemic uncertainty and the increasing usage of digital payment, the Reserve Bank said in its latest Annual Report.

In the money market, dealers saw relatively lesser leakage of currency from the liquidity management perspective during the election phase indicating declining significance of cash during the period.