JOIN USFive years after demonetisation, cash is still king, and stronger
Since demonetisation in 2016, digital payments have risen across segments like RTGS, IMPS, card payments, and UPI in terms of volume and value of transactions.
However, RBI data shows that DeMo has probably had the exact opposite effect of what the government claimed it was meant to do – the growth rate of certain digital transactions like card payments, which was supposed to rise rapidly after DeMo, has in fact been falling over the years.
Card payments include credit card as well as debit card payments.
In the year prior to DeMo, 2015-16, about 2.7 billion transactions involving over Rs 4.48 lakh crore were recorded, while the year of DeMo, 2016-17, saw the volume double to over 5.4 billion transactions involving Rs 7.4 lakh crore, a 65 per cent growth.
The next year, 2017-18, registered a 43 per cent growth, recording transactions worth Rs 10.6 lakh crore. In 2018-19, card transactions grew 13 per cent to Rs 11.96 lakh crore; and 2019-20 saw it grow to Rs 14.34 lakh crore.
But this category of digital payments witnessed a decline during the year of the pandemic, unlike other categories such as UPI, which has seen growth double every year since 2016-17. In 2020-21, UPI transactions involved Rs 41 lakh crore, helped by the pandemic.
However, currency in circulation (CiC), which was what DeMo was supposed to curb, shows that the exercise has had the exact opposite effect. In the five years since, CiC and the currency with the public have more than doubled, growing at a faster rate than GDP.
Indeed, it was only in the year of DeMo, 2016-17, that CiC and the currency with the public witnessed a drop in comparison with the previous year.
RBI data reveals, in fact, that while currency in circulation grew at an average 11-12 per cent a year between 2011-12 and 2015-16, post-DeMo, in the year after DeMo, it rose by 39 per cent in 2017-18.
In 2020-21, India’s cash-to-GDP ratio, or currency in circulation as a proportion of the country’s GDP, stood at 14.45 per cent -- higher than the 12 per cent before DeMo, and higher than what it is in leading economies like those of the OECD countries.
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