India’s Digital Dream Dilemma: Cash Up, Digital Payments Shrink

Significantly, the UPI platform, adopted by the government for payments for several schemes, is now showing signs of saturation as the volumes are not keeping pace with value of the transactions. First let us have a look at the cash in circulation. Ten years ago, cash to GDP ratio was 11% and hovered around 10-11% for many years before that. The government’s overnight policy of demonetizing currency notes of 500 and 1000 denominations created a national crisis of cash flow. Byzantine lines were seen outside the banks, cash was rationed by the banks and the misery caused to the people was dubbed “organised plunder and legalized loot” by the former Prime Minister, Dr Manmohan Singh, an economist of global stature. The Modi government, among other things, promised that the move will lead to increase in the organized economy by curtailing the cash economy which was the bane of black money. Slowly, the government started printing new 500 and 2000-rupee notes which increased the cash flow gradually. Then the printing of fresh 2000-rupee notes was stopped altogether 3 years ago. By this time cash to GDP had reached the 11% mark. After the pandemic, people scrambled for more cash as security and now the cash to GDP ratio is at 14.5%, much higher than Brazil, Russia, South Africa and China where the need for cash also increased.


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