Cash with public on decline as remonetisation slows; will a forced digitisation work?

Currency in circulation is growing at a much slower pace of late and it is probably because the government wants to curb black money generation by pushing digitisation, if RBI data is any indication. According to the latest data with the central bank, currency in hand increased a meager Rs 22,194 crore from week ended 24 March to 31 March. At Rs 13.35 lakh crore, the liquid cash in the economy as of 31 March was around 74 percent of Rs 17.97 lakh crore, which was the corresponding figure on 4 November 2016. [caption id=“attachment_3376942” align=“alignleft” width=“380”]  PTI[/caption] The marginal increase from week ending 24 March to 31 March signifies a deceleration in the pace of remonetisation, which is also evident from the lower cash withdrawals at ATMs. According to the RBI data, the currency in circulation soon after the note ban saw negative growth for nine weeks from 18 November to 6 January. The sharpest surge in the liquid cash happened in the week ending 13 January – Rs 52,786 crore. It is to be noted that even as the currency in circulation declined, there was a corresponding fall in cash at ATMs. This has been attributed to various reasons. According to a report in the Business Standard last week, the reasons for the low cash levels at the ATMs were due to the account closing for 2016-17 and long weekend that hit cash filling by ATM operators. Whatever the reasons, one thing is sure - this has resulted in a decline in cash withdrawals. This is being interpreted in various ways by many. According to a report in the Economic Times, the fall in cash withdrawals is also because of the increased adaptation of digital payment options. As per the RBI data, payments by United Payments Interface (UPI) have risen in March to Rs 2,391 crore as against Rs 1,902 crore in February. Volume wise too there has been an increase, indicating that the government’s push for the UPI may be finally paying off.

Change in currency in circulation (Rs crore) Create line charts

Meanwhile, payments through pre-paid payments instruments in March stood at Rs 2,147 crore (900 lakh transactions) up from Rs 1,874 crore (784 lakh transactions) in February. As Dinesh Unnikrishnan of Firstpost rightly asked in this article : Does this mean Indians are going cashless or is it just ATMs running dry? It is too early to come to any conclusion on behavioral shift of the consumers. “One needs to wait and watch for trends in the next several months to understand how the behavior of bank customers is changing in India post the note ban,” the article said. So why is there a decline in currency in circulation and a corresponding fall in cash withdrawal? According to a report in the Hindustan Times, the central bank is deliberately cutting down on remonetisation in order to support the government’s black money hunt. The remonetisation is likely to flatten by this month-end, says the report. The move seems to be an attempt to put pressure on the people to take digital route and thereby curb black money generation. The government had said once that the aim of demonetisation was digitisation of economy, which would bring informal economy into the formal fold and cut down cash transactions. However, of late there have been indications that with cash returning into the system, the government’s digitisation drive may be taking a hit. Seen in this context, the cutting down of remonetisation may be aimed at forcing people to return to digital payments. However, the question is how far can the government force the citizens to adapt digital payments. After all, it also depends on the adaptation of technology. Experience in many countries, including the US, has proved that the technological adaptation happens mostly with a generational shift. A forced adaptation will only make lives difficult for the poor. Moreover, there is no incentives for the common man to make a meaningful shift. For one, the gifts and rewards the government is offering are no incentives. (Data inputs by Kishor Kadam)