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4 Ways people saved differently post demonetisation
With less than a few hours’ notice, India demonetised 1,000 and 500-rupee notes. And its impact is still being discussed. “It will take us many years to understand the outcome of demonetisation,” said RBI deputy governor, Viral Acharya, while speaking at the Delhi Economics Conclave 2017 recently.
But we do know of some effects—like the increase in digital transactions. But another big impact has been on the way people save money. With cash no more the king, Indians have started looking for paper options like Mutual Funds and Insurance, according to the RBI’s Mint Street Memo.
Here’s a look:
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Bank deposits swell:
One of the biggest—and fairly expected—outcomes of demonetisation is the rise in bank deposits. And why would it be otherwise? People had to park their cash money somewhere. Bank deposits were the easiest option. On average, the amount people park in bank deposits between November and December has been falling 9.2% every year. In 2016, however, bank deposits jumped to Rs 4,35,800 crore from Rs 3,06,500 crore in 2015. But here’s the interesting part—even when you expand the timeline to March 2017—well after demonetisation—deposits grew by a large extent. “In nominal terms, excess deposits accrued to the banking system due to demonetisation are estimated in the range of Rs 2.8-4.3 lakh crore,” the RBI said.
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Rise in MF investments:
It’s not just bank deposits. “Assets under management (AUM) by mutual funds touched an all-time high of more than Rs 17.5 lakh crore by end-March 2017 and further increased to Rs 20 lakh crore at end-July 2017,” the RBI report said. And both Equity and Debt Funds gained. In fact, Debt Funds had earlier seen a net outflow of money during the November 2015-July 2016 period.
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Higher insurance premia:
Interestingly, the other option people turned towards was life insurance. People invested twice the amount in Life insurance companies as premium during November 2016. This was led by a 142% growth in premium paid to LIC and a near 50% growth in private life insurance premium collections. The best part is that this rise seems to be continuing. “Despite subsequent slowdown in the growth rate, the premium collections still witnessed double digit growth during May-June 2017,” the RBI report said.
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Shift from gold, real estate:
Since demonetisation, people have wanted to avoid investing in gold and real estate, both involve substantial levels of dealings in cash. As a result, gold and property prices have been lacklustre. “The continuing weakness in real estate activity and moderation in housing prices are also likely to further help channel funds away from physical assets into financial savings,” the RBI report said. This, along with a fall in interest rates, has made Mutual Funds attractive, the central bank report added.
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Rs 30,659 crore
One the benefits of demonetisation was touted to be the large dividend that RBI would pay the government. It estimated that the RBI would pay around Rs 58,000 crore as a dividend. This would have helped the government plug its fiscal deficit—the amount by which the government spends more than it earns. However, the government will only receive Rs 30,659 crore from the RBI, according to a Livemint report.
