Money & Banking

Three years after note ban, cash continues to be king; digital payments yet to catch up

Surabhi Mumbai | Updated on July 29, 2019 Published on July 29, 2019

According to experts, over the next few years, cash in circulation will grow in line with GDP growth as India is a predominantly cash economy

The demand for cash is higher in States with a high population density

Nearly three years after demonetisation of high-value currency, cash in circulation continues to be high. Experts believe that it will continue to be the preferred mode of payment, given its convenience and the country’s large informal sector.

Notes in circulation

According to data with the Reserve Bank of India, notes in circulation totalled ₹21.61-lakh crore by July 19, registering a steady rise from ₹19.1-lakh crore by July 20 last year. While this is lower than the May-end 2019 figure of ₹21.71-lakh crore, it is much higher than the ₹17.74-lakh crore notes in circulation before demonetisation as on November 4, 2016.

Similarly, other data show that while the number of ATMs in the country has decreased, withdrawals are on the rise. The number of transactions per day per ATM rose from 121 in September 2016 to a high of 145 in December last year before settling at 130 in April this year.

The latest RBI data, available for May 2019, show that 81.5 crore debit card transactions took place in the 2,06,819 ATMs across the country. In contrast, in May 2018, 74.8 crore debit card transactions took place at 2,06,989 ATMs operating in the country.

“Our sense is that over the next few years, cash in circulation will grow in line with GDP growth as India is a predominantly cash economy,” said Rustom Irani, Managing Director and CEO of cash business, Hitachi Payment Services, noting that while digital transactions are increasing at a significant pace, cash continues to be the preferred payment mode due to its convenience.

A cash index compiled by cash logistics company CMS with data from 2,300 locations stood at 115 in May 2019, against a high of 106 in September 2016 just preceding demonetisation.

It is a weighted index consisting of three factors – cash in circulation, cash handled in the CMS ATM channel, and cash handled in the company’s retail cash management channel.

The CMS study also found that the demand for cash is higher in States with a high population density, while more developed States such as Goa and Kerala, or States with difficult terrain such as Jammu and Kashmir and Tripura depend less on cash. It also found that use of cash has increased in sectors such as infrastructure (toll), insurance, and jewellery, and has reduced in aviation, apparels, and consumer durables.

“People are quite comfortable using cash, especially where penetration of internet and banking services is low. Also, the cost of digital transactions continues to be higher, and it is passed on to consumers when compared to cash,” noted a CMS Info Systems spokesperson.

Significantly, an HSBC report in February this year had noted that the currency in circulation in 2018-19 accelerated due to a “recovery in informality” in the economy, which could be contained in 2019-20 as the Goods and Services Tax (GST) matures. It had pegged the currency in circulation to GDP ratio to rise from 11.4 per cent in March 2019 to 11.6 per cent in March 2020, which would be lower than the 11.9 per cent on the eve of demonetisation.

Published on July 29, 2019
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