Cash still ruled in India despite the government promoting a cashless society. But that is about to change. Photo: AFP

While the Covid-19 pandemic has provided a fillip to cashless transactions globally in a socially distanced world, cash continues to be king in India.

Recent data released by the Reserve Bank of India states that currency in circulation grew by about 13% in the first nine months of the current fiscal year as people preferred holding cash as a precautionary measure amid the uncertainty caused by the Covid-19 pandemic.

As of January 1 this year, the currency in circulation crossed 27.7 trillion rupees (US$378 billion) from 24.47 trillion ($333 billion) on March 31, 2020. On a calendar year basis, the currency in circulation grew by more than 5 trillion rupees, or 22%, from January 1, 2020, onward.

In the wake of the economic uncertainty caused by Covid-19 and to deal with any untoward medical emergencies, people preferred having cash as a precautionary measure.

India’s Covid-19 caseload has crossed 10 million with more than 150,000 deaths and is second only in the world to the US. However, the number of active cases have been declining steadily and the government is planning to roll out a vaccination program from January 16.

The central bank earlier stated in its annual report for 2019-20, released in August 2020, that the demand for cash started to increase in the wake of heightened uncertainty caused by the Covid-19 pandemic.

In value terms, 500 rupee and 2,000 rupee banknotes together accounted for 83.4% of the total value of banknotes in circulation at end-March 2020, with a sharp increase in the share of the former, it added.

The current surge is said to be the sharpest since the Narendra Modi administration’s move to demonetize high-value currency notes in November 2016. From midnight on November 8, currency notes of 500 rupees and 1,000 rupees were outlawed and this froze 86% of circulating cash in the economy.

The total currency in circulation on November 4, 2016, was 17.97 trillion rupees.

This caused a severe hammering of the economy as the cash crunch wrecked many businesses in the informal sector, which employ the majority of the country’s workforce.

For the fiscal year 2017, the currency in circulation plunged nearly 20%, and in the following year, it surged 37% after the Indian government introduced new banknotes of 500 rupees and 2,000 rupees.

One of the professed aims of this exercise, among others, was to bring in a less-cash economy, with a push towards digital and other cashless modes of transactions. Though digital payments have consistently risen in the last four years, with the current pandemic providing an extra push, it has failed to impact cash usage. Since demonetization, the cash in circulation has grown more than 54%.