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Are Indians Going Back to Cash?

Mar 8, 2017


One of the so-called aims of demonetisation is to reduce the total amount of cash in the financial system. As of now, the financial system continues to have a lesser amount of cash than it had before demonetisation.

Take a look at Figure 1. It plots the currency with public between September 2016 and middle of February 2017. Currency with public forms a major part of the currency in circulation. The remaining being cash with banks. Before demonetisation, the cash with banks used to be around 4 per cent of the currency in circulation.

Figure 1

Figure 1 clearly tells us that the currency with public has been going up post December 2016. Nevertheless, it is still some way away from the pre-demonetisation level. Whether that level is achieved remains to be seen. It depends on whether the government decides to replace the entire currency withdrawn through demonetisation or not.

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Now take a look at Figure 2. This basically plots the rate of weekly increase in currency in circulation. I have taken currency in circulation and not currency with public because there are more data points that are available. The currency in circulation is declared by the Reserve Bank of India(RBI) every week, whereas the currency with public is declared once in two weeks. Also, I look at this data from January 13, 2017, onwards. This is because December 30, 2016, was the last date to submit the demonetised notes to banks.

Figure 2

The rate of weekly increase in currency in circulation has had a downward trend since January. Nevertheless, we will probably need a month's data more to say something with certainty. If the downward trend continues then the conclusion that can be drawn is that the government does not want to replace the entire currency that was demonetised. What will be the impact of that remains to be seen.

Let's look at some more data. Figure 3 shows the number of ATM transactions using debit cards since November 2015.

Figure 3

As far as ATM transactions using debit cards go, they have bounced back post demonetisation. In fact, the total number of transactions in January 2017 was more than that in January 2016. Having said that the total number of transactions in January 2017 was still lower than the pre-demonetisation level. If we ignore the jump in total number of transactions in October 2016 due to the festival season, the difference between the total number of transactions in January 2017 wasn't much in comparison to September 2016.

Having said that, we also need to look at the total value of ATM transactions using debit cards, which we do in Figure 4.

Figure 4

Figure 4 tells us that ATM withdrawals in rupee terms month on month tend to be very stable. There is some jump in October 2016, perhaps due to the festival season. After that ATM withdrawals in rupee terms crashed between November and December 2016, in the aftermath of demonetisation.

ATM withdrawals in rupee terms went up by around 79 per cent between December 2016 and January 2017. If ever there was a data point that showed that Indians preferred cash to carry out economic transcations, this is it.

Having said that, the total ATM withdrawals in rupee terms still remain below the level they were before demonetisation. This, despite the fact that the total number of ATM transactions using debit cards are more or less at the same level as they were before demonetisation (as we can see from Figure 3, ignoring the October 2016 data, which I think is a blip due to the festival season).

One explanation for this lies in the fact that the currency in circulation in January was still a long way off from the total currency in circulation before demonetisation. Hence, there was only so much currency going around which the public could withdraw. So, while the government might say that there was never a currency shortage in the aftermath of demonetisation, that is clearly not the case. Over and above this, there were withdrawal limits.

The data from the coming months will tell us if Indians continue to use cash or move towards digital transactions, as the government wants them to.

One data point that we can look at is the point of sale data using debit cards as well as credit cards. Point of sale is essentially any point where a consumer uses a credit card or a debit card to pay for goods or a service, with the card getting swiped in a point of sale machine.

Now let's take a look at Figure 5.

Figure 5

Figure 5 clearly tells us that the usage of credit cards and debit cards spiked up in the aftermath of demonetisation. But the value of goods bought using credit and debit cards through the point of sale route, fell by 8.4 per cent between December 2016 and January 2017, as more currency became available in the market. If we look at just debit cards, the fall is around 16 per cent. Of course, we need more data to see if this trend has continued in February as well.

To conclude, while there is not enough data to say that Indians have totally gone back to cash, but the data that is available does suggest that they are moving towards it.

Vivek Kaul is the Editor of the Diary and The Vivek Kaul Letter. Vivek is a writer who has worked at senior positions with the Daily News and Analysis (DNA) and The Economic Times, in the past. He is the author of the Easy Money trilogy. The latest book in the trilogy Easy Money: The Greatest Ponzi Scheme Ever and How It Is Set to Destroy the Global Financial System was published in March 2015. The books were bestsellers on Amazon. His writing has also appeared in The Times of India, The Hindu, The Hindu Business Line, Business World, Business Today, India Today, Business Standard, Forbes India, Deccan Chronicle, The Asian Age, Mutual Fund Insight, Wealth Insight, Swarajya, Bangalore Mirror among others.

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11 Responses to "Are Indians Going Back to Cash?"


Mar 9, 2017

As against Rs 18 trillion of currency in circulation, prior to demonitisation, the position as of Feb 24 was Rs 11 trillion. The rate of release of new notes in the recent weeks has been Rs 380 billion per week; therefore, it would take another 18 weeks or July 2017, before Nov 8 2016 position was restored. For small value transactions, cash is the most convenient form of payment. The govt's claim that electronic modes like Paytm, BHIM etc were free of charge is not true. Even if the transfer charge was made free, the data download/upload for making a mobile payment, costs money; often it does not work in the first attempt leading to increased data usage charge. While in the absence of currency, people were forced to other means, once the cash was available in adequate quantum, their use for small value transactions would wane away. Nevertheless, it is good to provide various options for payments, so that the public could use what suited them best.


Ullas Sharma

Mar 8, 2017

You have not considered the possibility that the reduced cash withdrawals per ATM transaction may be because of reduced cash requirements. We have reduced our cash requirements to 1/6th of pre-demonetization levels. Though we have started paying for sub Rs. 100 transactions by cash again, we are not going to even close to our cash requirements of pre-demonetization levels. As a result, our cash withdrawals per transaction are substantially lower. Of course, you have to look at the aggregate data and trends to draw conclusions but wonder why you did not consider the above as a possibility for a part of the population.



Mar 8, 2017

Dear Vivek Ji,

I am an ardent fan of your... write ups which i find very relevant and very straight forward and candid.

I am a small retailer in the Garment sector and We are caught in a catch 22 situation where the govt seems to be wanting digital transaction but we are politely declining to take that forward for variety of reasons like bank charges tax compliance related matters but what do we do now a new notification govt says from the 6th transaction in depositing money charges will apply there is no clarity and you have rightly said cash dealings are on the rise.

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Mar 8, 2017

The data and information given by your group is very excellent and lot of effort is used for this to make people aware of using A T Ms to the best extent. This will in the long run helps in reducing cash transactions and also reduces the cost of prntng currency. This reduces frauds also and hoarding of currency by blak marketers. We must thank the people who introduced the idea. Besides politicians must think they are for "service, sacrifice and patriotism" and not for amassing wealth and properties. Then only number of politicians and political parties gets reduced and poverty also. Gap between rich and poor must be reduced on priority. B S Ganesh

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Jeevan Shetty

Mar 8, 2017

The article is not useful and relevant now. Mr. Kaul seem to be justifying his analysis on the affects of demonitization. Article not very useful now. As far as demonitization is concerned, it is just a memory now. It has given a big push for cashless transactions.

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Mar 8, 2017

City and urban transactions may go down in the long run, but this was going down organically before demonetisation slowly. Rural economy will go back to cash transaction as before. For non cash transaction one of the major contributing factors is education which is being ignored. By education it is meant understanding and having faith in the banking system. This will take time in rural economy.

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Mar 8, 2017

I thought demonetization was done to curb the menace of black money. But how come no one is talking about it??

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Mar 8, 2017

This question is similar to asking -Are all Indians really going to die ultimately?- Ludicrous as it may appear, I have my reasons to say so.
1.Cash will never ever vanish from earth, let alone India, take it from me at least in next 100 years.Percentage will keep varying as and when people of any nation, India included, decide one way or the other.
2.No one goes back to womb once he is born on earth. It will only happen in case the "concerned soul" either decides to take rebirth or is forced by -Collective Soul- to come back to earth but then it will happen in another womb and not the same one, that is for sure.
3.Demonetization can never be either totally black or totally white, considered in any context whatsoever.There will always be grey areas. If you want to study more on this about my own viewpoints, please visit my blog
4.The author here is well advised to make a thorough study on this issue alone(Indians going back to cash and by how much, when, in which manner, under which circumstances etc) for next 5 years, our own parliamentary cycle, a reasonable good cycle for any investment banker/stock broker/stock adviser/investment advisor anywhere in the world to make study and communicate his or her findings for the benefit of his or her clients. This should be the cornerstone, the backbone or the foundation stone of any "Great Research Project" ever undertaken in economic history so far as "demonetization" is concerned anywhere in the world. Because to my mind, ours is the biggest/largest exercise just the way our democratic elections being the largest in the world. Giving just an analysis over a period of few months is going to fool people who are otherwise gullible anyway. When we see that recommendations of "small caps" can bring almost equal loss as well as profit, based on the great insightful analysis of the same team involved, as of this article, what otherwise to expect in this ever transient and ever evolving and fast changing dynamic world?.
5.For readers of this column and the associated comments, take it from me, we are going to see less use of cash, 100% for sure, of course not in the short run but definitely in the long run. This is no less an achievement for any government across the world, let alone India.But to believe this statement, we have to wait for 5 years if we are patient enough to do real analysis the way it has been brilliantly presented today in this article by Shri Vivek Kaul and his team.
6.Even if black money is generated furthermore with more cash starting to circulate, it will definitely be much less in the longer turn provided we as Indians believe that there is still a small element of spirituality intact within us. India as a nation, historically has been prosperous in ancient times, then due to its own contradictions in social terms which took few thousand years and not just tens or hundreds of years, got degenerated into a totally weak people vulnerable to invasions and ruin in repeated cycles starting from European to Muslim invaders to finally British. But the old India is rising again but fools claim it "communal uprising", some suggest "advancing dark ages" and so on depending on which political spectrum one is viewing it from.
7.I should conclude here saying that as governments, both state and central, in collaboration with its own people advance education spread, skills spread, infrastructure spread in terms of digital communications, if not roads, railways, bridges, airports etc within next 2/3 years, we are definitely going to see reduction is usage of cash in percentage terms and not in absolute terms.

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Mar 8, 2017

This writer does not see any merit in the several measures taken by Narendra Modi (including demonetization) to stem corruption, besides doubting their efficiency (even questioning the very intent) in curbing the creation and storage of black money. His forte is to first "arrive" at conclusions, based on his own biases, and then seek data to buttress them !! It is good this writer is not taken seriously by anyone. Modi has the vision and the indomitable risk taking ability to implement policy measures that no other politician in India could even dream of. And to keep his undivided attention on implementation, ignoring the carping criticism of effete, corrupt and brain dead opposition political parties and attention seeking anti Modi journos masquerading as "intellectuals".

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Saurabh Jindal

Mar 8, 2017

Its really true that people are going back to Cash again, but they are being compelled by those corrupt elements. I have seen this behaviour. Shopkeepers say "we wont accept the digital payment", since we dont want to keep anything in digital. They say they have to anyway pay the bribe to "Officers", even if they go to digital. So the crux is that Corrupt are still not afraid of Modiji's tough instance. It seems bad habits of last 60-70 years wont go easily and it can still be seen from the attitude of all these corrupt officers. It seems they have decided that they will somehow fail this cleanliness drive of the PM. recently I visited one of the developer (builder) in Ghaziabad and he bluntly told me "you have to pay 40% in black as cash". And he has already increased the prices saying "This PM will ruin the Poor", now see the impact of Demonetization, already we have to increase the prices, because whatever loss we have suffered we will charge you. When I asked But how can I give you this much amount in cash . He bluntly told "Ours CAs will take care of that", you will have to just pay 5% commision. So, it shows that after demonetization, we are being made to suffer by these corrupt people. Problem Modiji is facing how to control these corrupt people. Also, when I asked builder "but you have increased the prices, but since people was not able to purchase at old rate, how they will purchase at new rate". He says 'We will help them by allowing them paying in installments", but wont reduce the prices, since we have holding capacity. So, as you have already mentioned many times, untill or unless government stops bank funding for these developers, they are not going to drop the prices.

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