The case for cash

Though use of cash has increased since demonetisation, cleanliness in transaction and a rise in revenues for the govt have been two clear benefits.

  • Money9
  • Publish Date - November 8, 2021 / 04:10 PM IST
The case for cash

November 8, 2016 is, by any yardstick, a landmark in Indian economic history. At 8 pm on that day Prime Minister Narendra Modi took everyone by surprise and scrapped currency notes of Rs 500 and Rs 1,000. As much as 86 percent of the cash in the country was declared illegal overnight. Five years after demonetisation, the lessons are quite clearly a mixed bag. Data from Reserve Bank of India shows that the use of cash did not go down in the country. On the contrary, it has gone up both in absolute terms and as a share of the gross domestic product. In January 2016, the cash in circulation was Rs 15.1 lakh crore. It has risen to Rs 28.3 lakh crore in October 2021 a rise of nearly 1.9 times. In the same time window the share of cash in GDP rose from 11 percent to 12.5 percent.

It certainly proves that one cannot wish away cash from the country. But does it also prove that the move did not have any benefits at all? Perhaps not.

One of the most pronounced benefits of the conscious efforts of discouraging the use of cash has been increased hygiene of financial transactions. Demonetisation forced a lot of people to switch to official modes of transaction that directly led to a rise in the revenues of the government. UPI payments and through apps of banks have become hugely popular over the past few years. The official push to digital transactions has multiplied the momentum to move away from cash for the sheer convenience factor. The rise in the use of debit and credit cards have also encouraged people to carry less and less cash. The benefits of a rise in the formal transaction cannot be doubted. The rise in government revenues benefits the common man the most.

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