The rising levels of currency with public are an indication of the rising unaccounted transactions, out of the tax nets:
Currency is withdrawn from the banking system at some point during the multiplier process after which it falls out of the tax net. If after this point in time, it is assumed that money changes hand even once (i.e. multiplier = 2), size of transactions that are unaccounted have doubled to 16 lakh crores from 8 lakh crores in the short span of 2006-2010.
A case in point is the FCI procurement payments, which are made in cheques up to the middle men arthias, but ultimately reach the farmer in cash who further uses the currency and makes some more cash transactions.
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