7 years of demonetisation: Change in use of cash in Indian economy

It's been seven years since the Centre announced demonetisation. A lot has happened since then. Digital India has risen, and customers' way of spending has changed. But is cash still the king?

On November 8, seven years ago, Prime Minister Narendra Modi announced the scrapping of Rs 500 and Rs 1,000 notes, representing over 86 per cent of the currency in circulation by value, to reduce the reliance on cash in the economy.

Millions of Indians stood in the queues of banks and ATMs to either deposit these notes or get them exchanged for the new Rs 500 and Rs 2,000 bank notes. It marked a new beginning for India's currency in circulation. Gradually, India introduced a new series of bank notes, keeping the older ones still legally valid.

The Reserve Bank of India (RBI) later announced that 98 per cent of Rs 500 and Rs 1,000 notes were returned to the banking system, attracting mixed reactions from citizens, experts as well as politicians.

Nearly seven years later, in 2023, the RBI also announced its decision to withdraw the Rs 2,000 notes. These notes continue to be legal tender but the RBI wants Indians to return them. As of October 31, 97 per cent of all Rs 2,000 notes in circulation have been returned. The rest of the notes can be exchanged at the RBI branches, either physically or by post.

Rise of Digital India

Following the demonetisation, pushed by the Covid-19 pandemic, India has seen a massive jump in online transactions, especially using the United Payments Interface (UPI). A recent survey by LocalCircles said that after the demonetisation, the circulation of cash in the Indian economy and the adoption of UPI has grown. It added that only every four Indians used cash for over 25 per cent of their monthly household purchases in the past 12 months.

Last month, Hansa Research's 2023 DigiPay CuES survey highlighted that 58 per cent of consumers have reduced cash transactions since the pandemic. "There is substantial gain in popularity and experience with mobile payment apps coming from customers in non-metros (like Pune, Chandigarh, Bhopal, Indore etc) , older demographic (>35 years) as well as customers from lower socio-economic classes," it said.

India's digital transaction prowess is also being accepted by several countries in Asia as well as Europe.

In some sectors, cash is still a king

However, there are some sectors where cash is still the primary mode of transaction, especially real estate. A survey released by LocalCircles on the eve of demonetisation's seventh anniversary showed that the cash component in property transactions is rising.

It noted that 24 per cent of the respondents said they did not have to pay in cash while buying a property, as against 30 per cent just two years ago. The survey said over three-fourths of the respondents who bought a house in the last seven years since demonetisation have paid a portion of the deal amount in cash.

Over 28 per cent of the respondents said 10-20 per cent of their property deal amount was paid in cash, 15 per cent said over half of the amount was paid in cash, while 18 per cent said 30-50 per cent was paid in cash.

All cheque payments are "more an exception", as citizens surveyed revealed that only select builders selling flats and villas in large developments demand all cheque payments for the transaction.

"...the norm in property transactions is the use of cash and all cheque payments are more an exception," it said.

Meanwhile, even as digital transactions reach newer highs, the survey findings said that 82 per cent used cash for purchases in the last one year to pay for groceries, eating out and food delivery.

(With agency inputs)