“Demonetization’s Legacy: India’s Economy Sees 100% Surge in Cash Circulation”
Ira Singh
08 Nov’23
Seven years after the Indian government’s historic demonetization move undertaken to weed out black money and nudge people to change their method of payment from cash to digital,the country’s economy has witnessed a significant surge in cash circulation, with a recent survey revealing that the total cash in circulation has nearly doubled to a staggering 33 lakh crore INR. The move to invalidate high-denomination currency notes in November 2016 had sparked a nationwide debate and led to both praise and criticism.
Despite the UPI boom and the rising adoption of other digital payment modes, cash in circulation in the Indian economy has nearly doubled in the past seven years since demonetisation, a survey has found.The survey also found that 76 per cent of those who bought a property in the last 7 years had to pay a component of the price in cash.
In May 2023 for instance, UPI accounted for over 78 per cent of total retail digital payments in India, according to the survey conducted by LocalCircles. Experts project that it is likely to reach 90 per cent of total retail digital payments in India by FY 2026–27, the survey added. “Similarly, the recently launched Central Bank Digital Currency (CBDC) also has the potential to change the way people transact digitally.”However, while UPI and other digital payment mechanisms have reduced the number of cash transactions, cash in circulation in the Indian economy has increased from 17 lakh crores in November 2016 to 33 lakh crores in October 2023, the survey said.
“Cash is still being used heavily in big-ticket transactions, especially property transactions with the survey finding that 76 per cent of those who bought a property in the last 7 years had to pay a component of the price in cash,” the survey stated. In fact, it added, the cash component in property transactions is once again rising as this year only 24 per cent indicated that they did not have to pay cash as against 30 per cent of respondents two years back.
According to survey, most household purchases of high value be it a vehicle or a gadget were now happening digitally and with a receipt which was a positive change. However, despite that most consumers were still using cash to pay for groceries, eating out, and food delivery as well as when it came to paying for services like household help, home repairs, personal services, repair of white goods, etc., stated survey.
“The community feedback indicates that for groceries, eating out, household help payments convenience is the driver while for services taxable at 18 per cent GST rates, it is the taxation that is driving vendors and consumers to transact in cash.”
It is important to note that the demonetization policy was a bold and unprecedented move that aimed to tackle corruption, black money, and counterfeit currency. It had both supporters and critics, and its long-term effects continue to be a subject of discussion in India.
As the survey shows, seven years after demonetization, the Indian economy has experienced significant changes in cash circulation, consumer behavior, and financial inclusion. While the policy’s success may still be debated, its influence on the Indian financial landscape is undeniable.