India has been a cash economy for a long time, and cash is still used widely as the payment mode. Even though the digital interface in banking has grown considerably, the cash transactions continue to play an essential role in bridging the traditional versus digital mode while driving financial empowerment for the masses.
The government is trying to increase awareness about digital payments with the help of the banks. The banks are striving continuously to move merchants towards the digital payments ecosystem, and this led to a rise in the number of digital transactions.
Despite all these efforts, cash transactions still rule in India as it is the convenient mode for making transactions in semi-urban and rural areas. People are interested in digital transactions mainly because of the absence of transaction cost and also because of the lack of alternatives and the universality of acceptance.
Further, the RBI 2019-20 Annual Report states that the COVID-19 pandemic pushed people to ‘rush to cash’ mode. The pandemic has triggered many households to keep cash for ready usage. Also, this has resulted in the currency to GDP ratio slide towards the pre-demonetisation levels of 12%. The currency in circulation has risen to Rs 26.9 lakh crore since March 2020, which is a hike of 10% since lockdown bean.
Additionally, the growth in “Currency held with the Public” (CwP) increased from 11.3% (as on 28th February 2020) to 21.3% ( as on 19th June 2020). Also, the currency to bank deposit ratio shot up to 16.3% from the decade’s average of 15.1%.
The cash continues to play a significant role in payments due to the ease of usage, easy acceptance, widespread availability, and no cost to the consumer. These features made cash transactions the backbone of the Indian economy, majorly in the semi-urban and rural areas where cash is still the significant mode for the transaction. Here, the acceptance ecosystem for digital payments is still underdeveloped.
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DVSR Anjaneyulu known as AJ, is a Chartered Accountant by profession. Loves to listening to music & spending time with family and friends.