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Cash Is Back, Digital Transactions Slow Down: Report

Liquidity is creeping back.

18/01/2017 2:29 PM IST | Updated 18/01/2017 5:36 PM IST
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Industry executives say that while card transactions jumped by 30 percent after demonetisation, they, over the past few weeks, have observed that cash is coming back into the system and card payments are tapering off.

While it is still early days, the slow down in digital payments could be worrisome to the Modi government, which wants to minimize cash transactions in the country. To this end, the Centre is even considering taxing large cash withdrawals. This "cash tax" could be included in the 2017-2018 budget to be presented on 1 February.

Earlier this week, the Reserve Bank of India increased cash withdrawal limit at ATMs to ₹10,000 per day.

READ: Modi Government Is Considering Taxing Your Cash Withdrawals - Report

With the Reserve Bank of India printing more ₹500 notes, there is more liquidity in the system, which allows people to use more cash, The Economic Times reported today. The injection of ₹500 notes have mitigated the problems which people faced in getting change for the new ₹2000 note.

"There has been a slowdown in the rate of growth of card based transactions over the last few weeks, but the growth trend still continues to be positive," Lokvir Kapoor, CEO of Pine Labs told ET. "We have seen that small value payments which were being done through card after demonetisation are shifting back to cash with change against Rs 2,000 not being such a major problem anymore."

But the cash in circulation had shrunk by 4.3 percent from the previous week, which suggested there was still a paucity of notes, RBI said earlier this week. Currency in circulation has come down from ₹17.9 lakh crores as of 4 November to ₹10.5 lakh crore on 10 December, to ₹9.38 lakh crores on Dec 30, to ₹8.98 lakh crore as of 6 January.

READ: Cash In Circulation Is Shrinking By The Week, RBI Data Shows

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