Six years after demonetisation, cash is still king. Here's why

The Reserve Bank of India (RBI) may be set to roll out India’s central bank digital currency (CBDC), but cash still seems to be king. And this, even as digital payments are logging double-digit growth. 

According to RBI data, growth in currency in circulation in the one year to October at Rs 2.7 lakh crore, or 9% rise, was higher than Rs 2.3 lakh crore, or 8.5%, in the same period previous year.

Moreover, as a report by The Economic Times notes, some cash distribution companies have processed one of the highest amounts at ATMs this October. Also, cash continues to be the only payment settlement option for nearly 20% of the unbanked individuals who do not have bank accounts.

But why is this trend surprising or even slightly worrisome?

This is surprising and perhaps even worrisome, as cash still continues to rule despite two watershed events in recent history- the November 2016 demonetisation as well as the Covid pandemic beginning 2020. 

In fact, these numbers come on the 6th anniversary of demonetisation, which was supposed to end the dominance of cash in India. 

The nationwide lockdown in 2020 following the COVID-19 pandemic ushered in a behavioural change in the habit of payments and settlements with people moving to digital platforms in a big way, resulting in lesser dependence of cash thanks largely to the push by the government and policy makers to address the restriction of physical movements then.

But as the ET report noted, data indicated that cash still continues to be an important method of settling transactions.

What do the numbers on ATM withdrawals indicate?

According to the report, cash management company CMS's Cash Index for ATM rose 9% year on year and 13% over the month of Sep’22. This index is a weighted index consists of two factors, the cash that goes it infuses via ATMs and cash that it collects from the retail channels and is based on data collected from 659 districts and 12,367 pin codes across the country. Total currency processed by CMS through its pan-India network in the month of October 2022 was Rs 1.13 lakh crore , higher ever for the company in a month. 

How do these numbers compare among states?

All major states showed robust growth in cash withdrawals, CMS said. Large, urbanized states such as Maharashtra witnessed 17 percent growth, Karnataka (13%) and Tamil Nadu (11%) saw healthy double-digit growth in Oct’22 over Oct’21. Similar trends were also seen in upcoming developing states such as Bihar (14%) and Uttar Pradesh (13%), it said. The month also witnessed the CMS Cash Index for ATM channel hitting an all-time high indicating best Diwali ever.

What do the numbers further tell us about the prevalence of cash transactions in India?

Surveys also point that cash is still the preferred option in many areas. 76 percent of the household respondents said that they used cash for groceries, eating out and food delivery transactions in the last 12 months according to a survey of over 32,000 citizens across the country by community social media platform LocalCircles. 

Besides, most people have been paying cash for domestic staff services, personal services and for home repairs, etc. Interestingly, some respondents also had difficulties of accepting and enabling digital payments.

Property transactions emerged as the top area of cash usage from a value per transaction standpoint. 44 percent of those surveyed who bought a property in the last 7 years said cash was part of the transaction though the percentage of respondents paying cash for property transactions had come down, the survey found.