Toothless byte

As cash makes an early comeback, digital payment methods seem to have hit a wall

- Soumik Dey

Digital payment services providers were the happiest when Prime Minister Narendra Modi announced the demonetisation of high-value notes last November. They hailed the move as a ‘game changer’ that would bring to the fore digital transactions in a country which had the highest cash usage visa-vis GDP. With the intention of pulling out cash in circulation as fake currency or as black money, the government promoted the more transparent digital transactions and launched a special programme called ‘Cashless India’ under the umbrella of Digital India programmes.

Five months later, however, the digital drive seems to be going nowhere. Data from the Reserve Bank suggest that people are getting back to their cash-hoarding ways. “We are witnessing a rise in cash transactions in the months post demonetisation,” said Dr Jaimini Bhagwati, RBI chair professor at the Indian Council for Research on International Economic Relations. “This could be because of multiple factors, but what is more worrying is that there is a corresponding drop in digital transactions. This will keep the cost of currency high for India.”

Currently, the country bears about 1.7 per cent of its $1.2 trillion economy as cost of cash. This was set to come down to 1.3 per cent with increased usage of digital transactions, a government committee on digital payments, set up by the finance ministry, said in March.

It is not just the common man, even traders and small businesses have gone back to cash. Many medium and small business owners said the cash crunch was not over and there was a propensity to conserve cash. “Most of the temporary labour in our factories and godowns are paid in cash. We are somehow managing as there is no way without cash,” said Anil Bhardwaj, secretary general, Federation of Indian Small and Medium Enterprises.