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    Cashless India – A Distant Dream

    It’s been three years since demonetisation but the after-effects of it apparently haunt the Indians even now. Prime Minister Narendra Modi-led government announced the demonetisation of all Rs 500 and Rs. 1,000 banknotes of the Mahatma Gandhi Series on November 8th, 2016. It also announced the issuance of new Rs 500 and Rs 2,000 banknotes in exchange for the banned notes. Demonetisation aimed at reducing the cash intensity in the economy.

    The Modi government encouraged the public to go cashless and switch to non-cash payment modes. But surprisingly, some contradictory and perplexing trends have emerged lately. Though the cashless payment options saw robust growth, the level of cash hoarded by the public has grown faster than the Gross Domestic Product (GDP) growth of the country. The overall currency in circulation has continued to surge even above the nominal GDP growth.

    Digital payment modes, especially those on the Unified Payment Interface (UPI) platforms have seen a sturdy growth in India post note ban. It was believed that the Modi government had hit the bull’s eye by launching its own digital payment app called BHIM in April 2017. This government app reported the transaction of worth crore during the first year of operation. But as a matter of concern, the cash intensity has reached the pre-demonetisation mark in spite of the rise in the non-cash transactions.

    If we go by the latest figures from the Reserve Bank of India (RBI), Indians held Rs. 20.49 lakh crore in cash as of September 2019. The RBI said this figure is 13.3 per cent more than the figure for the corresponding month of 2018.  

    The statistics show that the cash held by the public made up 96 per cent of the money in circulation as against 83 per cent in December 2016, a month after demonetisation and the enforced deposits in banks. If we consider it as Rs 2,000 currency notes making it easier to hoard cash as compared to the banned Rs. 1000 currency note, still the supply of Rs 2,000 denomination notes has been regulated over these last two years.  

    Now the question arises is why this love for cash? The most obvious reason is consumers require cash for their daily economic transactions. Most of the street vendors are illiterate and are not aware of how to use the digital medium to transact. Besides, the low level of public confidence in India’s banks, tax evasion and the robust growth of alternative savings instruments like mutual funds are the most likely factors of cash hoarding.

    In a nutshell, digital transactions have gained momentum in the wake of demonetisation. But there is still a long way to go for a completely cashless economy.


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