Cash Comes Back In India

Many still rely on it, even after the government made bank notes hard to get.

- Anto Antony and Saritha Rai

India’s road to a cashless economy is going to be longer than many technological optimists had hoped. It turns out people will shift to digital payments very quickly when they’re forced to, but they’ll still want some paper money in their purses.

Back in November, Prime Minister Narendra Modi shocked the nation by announcing that existing 500-rupee ($7.75) and 1,000-rupee bank notes—about four-fifths of the rupees in circulation—would become invalid almost overnight and had to be exchanged for new bills. The idea was to curb tax evasion and corruption by exposing stockpiles of cash that had stayed outside the banking system and were essentially invisible. Indians have used cash for about 98 per cent of consumer payments.

After millions of Indians lined up for hours at banks to deposit their now-useless notes or exchange them for new denominations, economic growth faltered  in the first quarter of 2017 as consumer sentiment and cash-dependent industries were hit. With valid paper currency in short supply because the new notes rolled out more slowly than expected, the Reserve Bank of India set daily limits on cash withdrawals from ATMs. As Indians sought ways around the shortages, the value of digital payment transactions surged to a record 150 trillion rupees in March, according to central bank data, up from about 94 trillion rupees in November, the month in which the old notes were voided.