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As Digital Transactions Fall, Indians Are Going Back to Cash

Mar 16, 2017


Sometime last week I had asked the question, whether Indians were going back to using cash. And I had offered some evidence regarding the same. I had concluded by saying that "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".

In this piece, I will look at the same question by using a different set of data. On March 10, 2017, the Reserve Bank of India(RBI) released a document titled Macroeconomic Impact of Demonetisation- A Preliminary Assessment.

One of the things that the RBI document discusses is the usage of different digital modes of payment in the aftermath of demonetisation. As the RBI document points out: "After the announcement of demonetisation, digital activity levels were low in the initial weeks as people were busy depositing/exchanging SBNs (specified bank note). However, in December 2016, digital payment activity increased alongside progressive remonetisation."

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How does the data look? Let's first take a look at Table 1, which has the total number of digital transactions for various modes of payment.

Table 1
Volume (in Crore) Nov-16 Dec-16 Jan-17 Feb-17
National Electronic Funds Transfer 12.30 16.60 16.40 14.80
Cheque Truncation System 8.70 13.00 11.80 10.00
Immediate Payment Service 3.60 5.30 6.20 6.00
Unified Payment Interface 0.03 0.20 0.42 0.42
Unstructured Supplementary Service Data 0.00 0.01 0.03 0.02
Debit and Credit Card Usage at Point of Sales 20.60 31.10 26.60 21.20
Prepaid Payment Instrument 5.90 8.80 8.70 7.80
Total 51.13 75.01 70.15 60.24

Source: Reserve Bank of India

Table 1 tells us that digital payments went up in the aftermath of demonetisation and peaked in December 2016. Now take a look at Figure 1, which basically plots the total number of transactions.

Figure 1

What does Figure 1 tell us? It tells us that the total number of digital transactions in the aftermath of demonetisation did go up by around 50 per cent in December 2016 in comparison to November 2016, but has fallen since then. In February 2017, the number of transactions (i.e. the volume of transactions) had come down to a little over 60 crore from a peak of around 75 crore in December 2016.

Now take a look at Table 2, which basically shows the total value of transactions carried out through the different modes of digital payments.

Table 2
Value (in Rs billion) Nov-16 Dec-16 Jan-17 Feb-17
National Electronic Funds Transfer 8,808 11,538 11,355 10,878
Cheque Truncation System 5,419 6,812 6,618 5,994
Immediate Payment Service 325 432 491 482
Unified Payment Interface 0.9 7 16.6 19
Unstructured Supplementary Service Data 0.007 0.104 0.382 0.357
Debit and Credit Card at POS 352 522 481 391
Prepaid Payment Instrument 59 88 87 78
Total 14,964 19,399 19,049 17,842

Source: Reserve Bank of India

This again shows that the digital transactions rose dramatically in December 2016, in comparison to November 2016. This basically tells us that with very little currency being available in the financial system due to the demonetisation of Rs 500 and Rs 1,000 notes, people resorted to digital modes of payment. Having said that the use of digital mode of payment has fallen since then.

The fall in value of digital payments between December 2016 and February 2016 is 8.02 per cent. In comparison, the total number of digital transactions fell by 20 per cent from around 75 crore in December 2016 to 60 crore in February 2017.

As the RBI document quoted earlier in the piece points out: "The catalytic push from demonetisation hastened migration towards digital payments in November and December 2016. However, ease in availability of cash by progressive remonetisation impacted the pace of growth of digitalisation in February 2017." This is basically the RBI's way of saying in a very euphemistic way that Indians are going back to using cash.

One of the aims of demonetisation was to ensure that a greater part of the economy becomes digital i.e. people use digital modes of payments while carrying out economic transactions, instead of using cash. The initial evidence on this front is not very good. Nevertheless, as I said in my last piece on this issue, more data is needed to conclusively say that Indians have gone back to cash, though they are currently heading in that direction.

The question is what more needs to be done to keep encouraging people to move towards digital transactions. As the RBI document points out: "Further efforts are essential to enhance the use of digital payment going forward such as: (i) continued efforts to incentivise digitalisation; (ii) removing roadblocks in penetration of payment technology; (iii) handholding of new users to bring in behavioural shift; and (iv) providing an environment for development of a robust and easily scalable payment ecosystem that benefits from the advancements in technology. This will facilitate adoption of digital payments on a sustained basis and help in substantial savings for the country in terms of reduction in cost of cash in the system18; and an increase in accountability and tractability of transactions, thereby circumscribing tax avoidance."

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.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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10 Responses to "As Digital Transactions Fall, Indians Are Going Back to Cash"


Mar 18, 2017

The digital transaction can be popularised only if it is made safer, easily available and cheaper than the cash transactions.
1. Safety can be ensured by better IT checks and secure gateways.
2. Making portals available and handholding of newer customers is next step.
3. Making digital transactions cheaper than cash transactions needs:
a). Free issue of debit/credit cards by banks and perhaps post offices also.
b). Removing all fees (renewal, annual etc) on all cards.
c). Removing all transaction charges at customer end. In fact offering a small say 1-2% discount on bills for card payments as compared to cash payment will attract more savvy customers. The increased volume, tacking of transactions leading to increased tax compliance will off set all the expenses on these accounts. If required Govt can foot the expenses on these issues through increased tax collection and elimination of black money.

Is the Govt and Fin ministry sincere in its motive?

Like (1)


Mar 18, 2017

Just an example of current incentives on digitalization - When I book & pay a refill in indane online I get a discount of Rs.5/-, but the bank charges work out to Rs.8/-. Why should I pay Rs 3/- extra to go digital ? So, is this incentivising or penalising? This also goes on to show that the concerned authorities roll out measures only for namesake and do not really bother about the bigger picture.

Like (1)

A G Deshmukh

Mar 17, 2017

Digital Transaction operational costs are more and hence shop keepers are NOT likely to adopt it. I personally have objection to the way MDR charges are levied. These are linearly linked as percentage of value of transaction. For example, for Rs. 5000 transaction it's MDR charges could be Rs. 50/-, while that for Rs. 50000/- it could be as high as Rs. 500/-. It is to be noted that in both transactions, operational cost/technology cost are the same. Hence it is totally ill-logical to levey such MDR charges as a percentage of value of transaction.

Unless these charges are reduced to more logical levels, which could be based on operational costs plus some reasonable margins. Most of the cards in India are issued by VISA and MASTER. These institutions have designed charge structure to mint money and banks also have vested interest in the same.

If MDR charges are reduced and made at par with NEFT / RTGS charges, there will not be opposition from shop keepers.

VISA and MASTER are not likely to cooperate in this matter. The way to tackle this issue is Govt. aggressively gives push to RUPAY card and makes charge structure at par with NEFT / RTGS charges.

Otherwise, all concerned will use cash as mode of transaction.

Like (1)


Mar 17, 2017

As people were used for cash transactions only for last 70 years due to selfish motives tax evasion as a way of life. To follow law was treated as madness . People were at the imagination that unlimited cash transactions is their birthright and they can bent rules and regulations as per their wish. Selfish politicians government employees encouraged lawlessness for their own benefit. Now new government tries to discipline government machinery which is a unpopular decision difficult to practice but essential for national interest. All election results indicate people silently supporting government. vested interest tries to oppose this change .

Like (1)

Parimal Shah

Mar 17, 2017

The major reason is service tax and transaction charges on digital payments that adds to the amount spent. Government and RBI and businesses are not realizing that if such charges are abolished larger number and value of transactions will make up much more money even after maintenance and running cost in terms of profits and taxation. Sometimes simple things look more difficult to understand for the so called experts.

Like (1)

Dr Piyush Gupta

Mar 16, 2017

You have missed out one factor, viz. digital payment frauds that happened twice with me with no redressal mechanism in place and, therefore, I stopped using the digital mode of payment.

Like (2)


Mar 16, 2017

Shift from Cash to Cashless economy, is no doubt a good move which has several advantages, even though it may not curb corruption since corruption is a state of mind that applies to both the receiver and the giver. But, what Narendra Modi did is very much right but with little element of too much of hurry. Instead of empowering and updating the people, mainly less educated class, to use technology for certain basic transactions, he forced the decision which may back fire; when Jan-Dhan account scheme was brought in, most of rural masses opened bank accounts, though they were illiterate for the simple reason that it was a ZERO balance account and it was eligible for some financial help, when needed. But, ironically agents took-up the suddenly-created job of filling the Account opening forms who charged from Rs. 50/- to Rs.100/-, which can be called as employment generation!

Like (1)

A Patil

Mar 16, 2017

It would be good to know the volume of digital transactions (in both numbers and monetary amount) pre-demonetisation - i.e. in Sept and Oct 2016, and also in Jan & Feb 2016 (just in case the transactions vary with the time of the FY). That would be a complete comparison.

Like (1)


Mar 16, 2017

First of all, one should understand that the LESS-CASH/Digital SPIN of the Government was to keep people busy and not focus on the note issue. Everyone was busy touching/feeling/using something new and hence, the masses did not raise any protest. Having successfully completed the 3 months, even Govt. will not make too much noise about use of CASH for small and medium transactions of the common public. Month on Month, the cash usage will increase and will almost come closer to the pre-DEMO stage. It is all about how to manage the minds of the MASSES which #Modi knows well.

Like (1)

Amirali Charania

Mar 16, 2017

Vivek, Appreciate your writings & analysis.

February had 28 days whereas Dec-16 & Jan-17 had 31 days.

Request to rework the numbers for Feb with 31 days & provide the clear picture.

Like (1)
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