I wrote briefly about demonetisation last year. More than 18 months have passed, and cash levels are now well above pre-Demonetisation levels. It shows that India has missed a huge opportunity which had presented itself in the face of adversity. It has missed the opportunity to formalize vast swathes of informal economy.

A lot of effort went into proving how it harmed the economy, and sadly that seems to be the primary outcome from it. Those who did see it as an opportunity couldn’t capitalize and we are back at staus quo. A recent HSBC report suggests that GST may have contributed in the sharp return of cash Link

India is a resource constrained developing economy, and it ends up wasting a lot of its resources in circulating ~Rs.20lac crore currency. It’s not that we are not capable of managing the same, but it is simply a waste of precious resources.

On one hand cash is back to status-quo, and on the other hand digital fraud has grown leaps and bounds. Indian law enforcement and payment processing systems are woefully lacking in this area. Technologies such as blockchain could potentially reduce fraud, however Central banks must take the lead in this area, and do much more than what is being done currently.

What will it take for GOI, RBI and corporations to leapfrog into 21st century?


Pass on the true cost of managing physical currency to the user. There should be no free ATM withdrawals, and cost should be proportional to the amount of money withdrawn. Make cash transactions costlier for business’ by making banks charge a higher levy on deposit of cash.


Aggressively pursue fraud in digital transactions. Make sure it is pursued with all seriousness and urgency. Without this, the credibility of digital transactions will suffer and lack of trust will hamper adoption. Machine learning and blockchain deployment are promising in this area.

Eat your own Dogfood

Government should take the lead and stop accepting cash for its non-essential services. This applies to countless offices and facilities run by the government. Government facilities should not accept cash from government employees.


Ease of making digital micro payments would make the economy stronger in long term. The lesser the friction the better. Those who don’t accept digital transactions would miss out on a growing piece of business.

Privacy and Taxation

A bit of inhibition about adopting digital transactions is about privacy. UPI solves it to a large degree. One can generate any number of UPI VPAs and use them to make payments anonymously. A large number of people refuse to accept money into their accounts, fearing about tax treatment of the same. Here educating the people about what constitutes as a taxable income would help in alleviating such concerns.

Citizens have to be nudged towards progress. Given how cost-sensitive an Indian citizen is, even miniscule levies on cash handling would be sufficient motivation to kick the habit and preference for cash. Change is usually difficult and painful, and there will be unintended consequences. The march continues.

Best, Umang