Editorial: Realising dream of a cash-free India

​CHENNAI: The exercise of demonetisation that kicked off on the eve of November 8, 2016 entailed currency notes of Rs 500 and Rs 1,000 being banned. It was aimed at flushing black money and corruption out of the Indian financial ecosystem. Overnight, 86% of the nation’s currency was wiped out, which had a cascade effect on India’s GDP which plummeted by 8.7% as the banking system struggled to infuse cash back into the system. Thousands of SMEs and MSMEs were compelled to shut shop as the cash-centric credit system around them crashed, leaving millions without a job.

Six years later, the knee-jerk measure begs the question — could we have done without it? Congress president Mallikarjun Kharge lambasted the ruling dispensation saying that the PM is yet to acknowledge the ramifications of this measure that led to the fall of the Indian economy. And there’s a good reason for his rhetoric as well. Just a few days ago, a media report detailed how currency with the public has surged to a new high of Rs 30.88 lakh crore as of October 21. This is 72% higher than the quantum of cash available with the public in November 2016, which was Rs 17.70 lakh crore. The data provided by RBI was pertaining to the money supply in the economy. The objective of ridding the nation of forged banknotes also fell flat as counterfeit notes increased by 10.7 percent in the FY ended March 2017.

Financial experts have said that demonetisation had in some ways accelerated India’s adoption of digital payments. The pandemic that followed four years later, had also played its part in pushing people to opt for contactless payments facilitated through UPI-based platforms. As per the IT Ministry, the volume of digital payments made in India has been surging year-on-year with as many as 7,422 crore transactions recorded in FY 2022, an increase of 33% from FY 2021. Numbers released by the National Payments Corporation of India tell us that UPI transactions breached the 6 billion mark in May this year, with a transaction value of Rs 10 lakh crore.

But, there are deterrents to complete digitisation of financial transactions in India. For instance, there are still some sectors that rely on a significant cash component such as the real estate sector. Despite the presence of the RERA Act, people find ways to give and receive payments in cash, which brings down registration costs significantly. What must also be noted is that India is still a cash-dependent economy in a lot of ways.

While digital payments have been picking up steadily in recent years, both in terms of value and volume, the currency in circulation to GDP ratio has also increased in line with the overall economic growth. The digital payments to GDP ratio in India is particularly low. That’s because the number of people using digital services like UPI is just about 250 mn which is about one-fifth of the population. Cash in circulation can witness some reduction only if one third of the population, on both the demand and supply end, adopt digital payments.

India has a long way to go to transform into a cashless economy. Ensuring financial inclusion for all, especially millions of daily wage workers who are still not covered under banking, and undertaking measures to improve digital and financial literacy are important. Without these, only a privileged few would reap the benefits of a modern digital India.