5 years post demonetisation, though cash usage has declined, its use is still prevalent in property transactions, grocery purchase and payment for services

Though cash transactions in India continue to decline, cash still continues to be a key component of property transactions

November 8, 2021, New Delhi: The problem of black money – a fraudulent economic activity that usually takes place in the absence of an authentic cash bill, receipt or an invoice and as such are not taxed – continues to be a major cause for the Government to lose tax revenue. Aimed at reducing such illegal economic activities, the Government of India on November 8, 2016 implemented demonetisation of INR 500 and 1,000 currencies. The move was hugely supported by citizens from around the country, but quickly lost ground after facing implementation issues, inconvenience to deposit and withdraw money from banks, which temporarily caused the country’s economy to slow down as well as loss of livelihood for many. 5 years later as India marks 5 years of demonetisation, experts argue that black money is back again in the system and demonetisation only managed to reduce the supply of it for a few years. For instance, the tax department recently uncovered unaccounted income worth ₹250 crore across 34 premises in Kanchipuram, Chennai and Vellore. Similarly, last month the Income Tax Department unearthed 550 crores of unaccounted money with Hetero, the maker of the COVID management drug Remdesevir. The drug was widely sold via black market channels during the first and second wave of COVID in India.

According to the RBI data, currency with public for the fortnight ended October 8, 2021 stood at a record high of INR 28.30 lakh crore, up 57.48% or INR 10.33 lakh crore, from a level of INR 17.97 lakh crore on November 4, 2016. Cash with public has shot up 211% from INR 9.11 lakh crore, recorded on November 25, 2016. It rose by 8.5%, or INR 2.21 lakh crore, on a year-on-year basis. The jump was primarily driven by a rush for cash by the public in 2020 as the government announced stringent lockdown to tackle the spread of the Covid pandemic.

Digital experts though say that the pandemic has brought about a behavioural change in usage of cash, with citizens withdrawing large amounts from ATMs but preferring to make payments through digital modes. The average size of withdrawals have gone up by 20% in both urban and rural India. The Reserve Bank of India’s annual report for 2019-20 revealed that many economies saw a rise in cash in circulation as citizens started hoarding cash during the pandemic. However, currency circulation in India was particularly sharp, with circulation rising to 26.9 lakh crore since 2020, as per RBI reports.

November 8, 2021 marks 5 years of demonetisation and on this occasion, LocalCircles has conducted a survey to understand how Indians are using cash. It also sought to get a pulse on their purchasing habits with and without a receipt while buying products and services. It then compared this year’s findings with a similar survey previously to understand the trend among citizens transacting in cash in the last 12 months. It also sought to understand the use of cash when people bought a property in the last 7 years. The survey received over 36,000 responses from more than 388 districts of India. Of which, 44% respondents were from tier 1, 33% from tier 2, and 23% from tier 3, 4 and rural districts.

Black Money in Property Transactions: 70% of those who bought a property in the last 7 years had to pay a component of the prices in cash; 16% paid over half of the amount in cash

Cash is still widely prevalent in Indian while buying a property. For the corrupt, real estate has been a way out to convert their black money to white by buying several properties in other’s names. Though several efforts have been made by authorities to curb the menace, but such practice still looms large. Citizens on LocalCircles continues to report that cash is still widely used in buying and selling properties, mainly to evade taxes paid to the Government, via commission agents, middlemen or brokers. People have also highlighted that even for many MSMEs, real-estate sales and purchase, sale and purchase of agricultural land, transactions continue to take place with property registration taking place at a fraction of the value paid thereby evading taxes.

The first question in the survey sought to understand an aggregate percentage of the value citizens had to pay in cash when they or their family bought a property (land, house, flat, shop, office, others) in the last 7 years. In response, 16% of citizens said they paid in cash for “over 50%” of property purchases, another 16% said “30-50%”, 32% said “10-30%”, and 6% said “0-10%”. There were only 30% of citizens saying “none” of their property transactions was done via cash. On an aggregate basis, 70% of those who bought a property in the last 7 years had to pay a component of the prices in cash, while 16% paid over half of the amount in cash. This question in the survey received 8,920 responses.

For 2 in 3 Indians, cash transactions now less than 25% of their total transactions

In India, the Goods and Service Tax Law and Income Tax Act, 1961 makes it mandatory to generate and provide receipts to customers, for the purpose of audit or assessments. The question in the survey asked citizens about the percentage of their monthly purchases on average without a receipt in the last 12 months. In response, 56% of citizens said that “5-25 pct” of their monthly purchases were without a receipt. 15% said it was “25-50 pct”, and another 15% said it was “50-100 pct”. Only 11% of citizens said “none”, while 3% couldn’t say. This means that on an aggregate basis, for 2 in 3 Indians, cash transactions now less than 25% of their total transactions. This question in the survey received 9,082 responses.

Rise of Digital Payments: In the last 12 months, approximately 20% Indians reduced their cash transactions

After comparing the finding with similar survey results of 2019 and 2020 surveys, 27% of citizens in 2019 and 14% in 2020 reported saying, “50-100 percent” of their monthly purchases on an average were without a receipt, and is currently at 15% this year. This shows that there has been approximately 20% reduction in the number of citizens who did the majority of their monthly purchases without receipt in the last 12 months.

Over the years, India has witnessed a tremendous rise in the usage of digital payments, which has eventually led to an increase among consumers getting a digital receipt for their purchase. India has been seeing a rapid rise in the use of digital payments since the pandemic began. For instance, UPI payments experienced a 109% growth in the last 12 months, with INR 6.06 lakh crores worth of transactions in July 2021. Other forms of digital payments like credit and debit cards have also seen similar growth. However, despite the Government's efforts to digitise the economy, the cash in the economy is still the king, and has shot up to 14.7% of GDP in 2020-21, according to data in the Reserve Bank of India's annual report.

Of those who have used cash for purchases in last 12 months, 95% have used to pay for groceries, eating out and food delivery

This question in the survey also tried to understand for which categories of products did citizens spend or paid a sizeable portion in cash in the last 12 months. In response, 7% of citizens said they have used cash to buy “(1) groceries, eating out & food delivery”, “(2) gadgets such as smartphone, laptop, etc”, and “valuable like property, jewellery, used vehicle”. 6% said they have used cash to buy “1 & 2” categories of products from the aforementioned options, and 3% said “1 & 3”. The majority of 79% have used it to buy category “1”, while 3% have used it for “other” purchases, and 1% couldn’t say. On an aggregate basis, of those who have used cash for purchases in the last 12 months, 95% have it used to pay for groceries, eating out and food delivery. This question in the survey received 9,180 responses.

Of those who have used cash for purchases in last 12 months, 13% have used it for buying gadgets while 12% have used it in buying valuables like property, vehicle or jewellery

If reasons given by citizens are evaluated in the order of priority, the findings indicate that 95% in the last 12 months have used cash for buying “groceries, eating out & food delivery”, 13% has used it in “buying gadgets such as smartphone, laptop, etc”, and 11% used it for “valuables like property jewellery, used vehicle”.

Of those who have used cash to pay for services in last 12 months, 3 in 4 have used it for paying for services like house-help, home repairs or beauty/haircut, etc.

Similarly, the following question tried to understand for which categories of services have citizens paid in cash in the last 12 months. In response, 20% said “salaries of domestic staff”, 1% said “travel”, and 19% said “personal services or home repairs, etc”. Breaking down the poll, 2% of citizens have used cash for “1 & 2” categories of services from the aforementioned options, 2% said “2 & 3”, 36% said “1 & 3”, and 16% said for all “1, 2, & 3” categories. Furthermore, 2% said “others”, while another 2% couldn’t say. On an aggregate basis, of those who have used cash to pay for services in last 12 months, 3 in 4 have used it for paying for services like house-help, home repairs or beauty or haircut, etc. This question in the survey received 8,927 responses.

In summary, 5 years post demonetisation while the use of digital transactions in India has rapidly accelerated due to COVID, the use of cash is still prevalent in property transactions, grocery buying and paying for services. 70% of citizens surveyed said that when they or their family bought a property in the last 7 years had to pay a component of the prices in cash while 16% paid over half of the amount in cash. Of those who have used cash for purchases of products in last 12 months, 95% have used to pay for groceries, eating out and food delivery. Similarly, of those who have used cash for purchases of services during the period, 3 in 4 have used it for paying for services like house-help, home repairs or beauty/haircut, etc.

The good news however is, for 2 in 3 Indians, cash transactions are now less than 25% of their total transactions. Also, if data points from previous years are compared, it is evident that just in the last 12 months approximately 20% of Indians have reduced their cash transactions. India has already embarked on the cash to digital payments bandwagon. If the Central Government and State Government put in a major comprehensive effort to drastically reduce black money in property transactions and the GST Council considers lowering GST rates on services, India can likely continue the current momentum of migration from cash to digital transactions in the next 5 years.

LocalCircles will be sharing these findings with key stakeholders in the Government for their understanding and action.

Survey Demographics

The survey received over 36,000 responses from more than 388 districts of India. Of which, 44% respondents were from tier 1, 33% from tier 2, and 23% from tier 3, 4 and rural districts. The survey was conducted via LocalCircles platform and all participants are validated citizens who had to be registered with LocalCircles to participate in this survey.