MUMBAI: Consumers withdrew record amounts of cash from the banking system during the just concluded festive season that saw strong sales of consumer products, the two data points together offering a comforting picture of consumer sentiment in the country.



Cash and currency in circulation in the system, essentially computed using data on cash withdrawals from banks and money held in banks’ and central bank vaults, rose by a record Rs 66,070 crore in the first two weeks of November, according to latest data from the Reserve Bank of India (RBI).



This is 2.5 times the figure for the Diwali fortnight last year and also a record rise during any two-week period in India, an ETanalysis of past data shows. Until this year, the cash and currency in circulation figure had never exceeded Rs 47,000 crore, which was during the Diwali fortnight of 2012. In fact, this number breached the Rs 20,000-crore mark only in the Diwali fortnight of 2007, around the time inflation became a major problem. There have been instances of sharp rise in currency in circulation during elections.



The sharp increase in cash and currency in circulation this festive season coincides with strong growth reported by consumer goods companies, thereby appearing to confirm the notion that buyers did not shy away from spending this year and portending better tidings in the future. Sales of smartphones, refrigerators, televisions and kitchen equipment are said to have risen during this year’s festive season.





Analysts said expectations of salary increases following the pay commission recommendations may have prompted some consumers to loosen their wallets. The commission announced its report last week in which it has recommended a 23.5 per cent increase in wages for central government employees."The unexpectedly high cash accretion in the pre-Diwali weeks this year, even adjusted for election campaign spending, might have been caused inter alia by pay commission-related salary increase expectations, reinforced by deep discounts offered by sellers, particularly cash discounts," said Saugata Bhattacharya, chief India economist at Axis Bank.This season saw ecommerce players get a good response to their big sale events, even though their discounts were mostly limited to select brands such as online exclusive ones, old merchandise and their own private labels. Online retailers, armed with hoards of venture capital cash, were dominant players during last Diwali season in which they manage to eat into sales of their brick-and-mortar rivals. Their ‘cash on delivery’ payment option is also seen as a contributory factor to the high levels of cash in the system.Meanwhile, the Seventh Central Pay Commission-recommended payouts this time around will happen against a macroeconomic backdrop of low inflation, potentially triggering a pick-up in consumption expenditure. "This time around, real wages are likely to be higher over next two years. Higher real wages are likely to push up consumption growth," noted a recent report by HSBC Global Research.

On the high street too, there is cautious optimism that the economy has seen off the worst. "People’s mindset has changed that bad days will not come back. Things would either remain the same or good days will come back," said Nilesh Gupta, chief executive officer of Vijay Sales, a leading electronics store chain in Mumbai. Gupta said his stores had seen strong consumer spending, with sales rising 15 per cent over last year’s levels.



It was no different at consumer goods manufacturers. Consumer goods behemoth Samsung also reported strong sales growth. "The festival season has been extremely encouraging for Samsung, showing strong signs of growing consumer confidence and spending. We witnessed significant growth across categories and price segments," said a Samsung India spokesperson.



