Old habits die hard. Indians are back to including cash again in their daily transactions after the government spun demonetization as a way to strike at the very root of this habit.
Two charts show us cash is getting integrated again into our lives, and the Reserve Bank of India (RBI) is helping as well.
Chart one is the increasing quantum of currency made available with the public. Currency with the public was Rs10.63 trillion in the fortnight to 17 February, up 8.5% from the previous fortnight and about 36% since demonetization purged the old notes. This has been growing faster every fortnight and seen together with the notes in circulation data indicates that new notes are being made available. Notes in circulation are nothing but all notes issued by RBI as legal tender, while currency with the public are the part of these notes in the hands of individuals.
Chart two shows Indians are withdrawing cash from either bank branches or automated teller machines (ATMs). The use of ATMs surged in January as withdrawal limits came off. The rise will also indicate that more and more of the new Rs500 notes and other lower denominated currencies were made available, prompting Indians to withdraw money from ATMs.
Indians withdrew Rs1.5 trillion from ATMs using their debit cards in January, according to RBI data, and this is up a massive 78% month-on-month.
In December and November, the total value of all such transactions had fallen by more than half, compared with the previous months. Surprisingly, Indians used credit cards to withdraw cash from ATMs as well, essentially taking a personal loan. Credit cards were used to withdraw Rs152 crore during January, a rise of 73% from the previous month. With this rise, both credit and debit card usage at ATMs are inching close to the pre-demonetization levels in terms of value of transactions.
But from here on, it gets tricky as a look at the volume of transactions tells a different story. The volume of debit card usage at ATMs is up only 12% month-on-month and its share in total debit card transactions remains below the pre-demonetization levels. Usage of debit cards at point-of-sale (POS) machines has declined in January which was expected. But it is still healthier than those seen before November.
So, the answer to whether cash is back is yes, but not in its entirety. Given that the share of ATMs in debit card usage has been historically around 90%, the fact that POS transactions now form a greater 20% says using plastic has gained currency. Once all kinds of withdrawal limits are off from 13 March, perhaps we will be back to being cash-rich Indians.