7 years post Demonetisation: While number of cash transactions have reduced post UPI, big ticket transactions like property still require a sizable portion to be paid in cash

November 8, 2023, New Delhi: 7 years ago today, the Government of India announced the demonetisation of its currency as a step to reduce black money in the economy. This was followed by the introduction of the Unified Payments Interface (UPI). While the demonetisation exercise had limited benefits for the disruption it caused in the lives of people of India, the UPI has truly transformed how Indians pay for products and services. From paying for coconut water or for buying vegetables from the cart vendor and for paying for ecommerce shipments with a scan or paying one’s share of the bill for a restaurant meal to a friend, UPI has gotten integrated into urban daily life of Indians. In May 2023 for instance, UPI accounted for over 78% of total retail digital payments in India experts project that it is likely to reach 90% of total retail digital payments in India by FY 2026–27. Similarly, the recently launched Central Bank Digital Currency (CBDC) also has the potential to change the way people transact digitally.

However, while UPI and other digital payment mechanisms have reduced number of cash transactions, cash in circulation in the Indian economy has only increased from 17 lakh crores in November 2016 to 33 lakh crores in October 2023. To understand this better and where people are using cash for purchases, LocalCircles conducted a national survey which received over 44,000 responses from citizens located in 363 districts of India. 67% respondents were men while 33% respondents were women. 44% respondents were from tier 1, 32% from tier 2 and 24% respondents were from tier 3, 4 and rural districts.

76% of those who bought a property in the last 7 years had to pay a component of the price in cash

In community feedback exercises, citizens over the last several years have shared how cash continues to be a sizable part of property transactions in India, right from advances to final payment and through the registration process, cash is a must. The survey asked respondents, “When you or your family bought a property (land, house, flat, shop, office, others) in the last 7 years, on average what percentage of the value had to be paid in cash?” Out of 10,861 who responded to this query 15% indicated over 50% of the transaction had to be paid in cash; 18% indicated that the cash component was 30-50%; 28% of respondents indicated a lower component of 10-30% and 15% of respondents indicated 0-10%. However, 24% of the respondents were able to complete the transaction without paying any part in cash. The data shows that 76% of those who bought a property in the last 7 years had to pay a component of the price in cash; 15% paid over half the amount in cash.

These findings were corroborated with real experiences of people and many shared how to purchase any land or plot, the transactions involve a sizable percentage of cash. Citizens also shared that it is only select builders selling flats and villas in large developments who demand all cheque payments for the transaction indicating that the norm in property transactions is use of cash and all cheque payments are more an exception.

Cash component in property transactions is once again rising as this year only 24% indicated that they did not have to pay cash as against 30% of respondents two years back

A comparison with the survey done in 2021 shows that instead of things improving, the cash component in property transactions is once again rising as this year only 24% indicated that they did not have to pay cash as against 30% two years back. Similarly, as against 6% who had to pay 0-10% cash component this year 15% of respondents indicated that they paid up to 10% in cash or unaccounted money. Among those who paid 30-50% of the property value in cash, the percentage has risen from 16% in 2021 to 18% this year. In two groups, there has been some dip: those who paid over 50% in cash so far this year has dipped marginally to 15% from 16% of respondents in 2021; also those who paid between 30-50% in cash has slipped from 32% of respondents in 2021 to 28% so far this year.

26% Indians surveyed still using cash for most of their household purchases and without a receipt

As an increasing number of Indians take to using digital modes of payment, the survey sought to understand what percentage of household purchases were still happening in cash. It asked respondents, “If you look at the last 12 months, on a regular basis, what percent of your monthly household purchases on average were in cash and without a receipt?” Out of 11,189 citizens who responded to this query only 15% indicated that they don’t do cash transactions and 3% of the respondents opted for “can’t say”. As for the rest of the respondents, 56% shared that 5-25% of their household purchases were in cash and without a receipt; 18% shared that 25-50% of their household purchases on average were in cash and without a receipt; and 8% of respondents shared that 50-100% of their household purchases were on average done in cash without a receipt. As the data shows 26% of consumers surveyed indicated that over 25% of their average household purchases were in cash and without a receipt.

As compared to the survey done in 2021, there is a marginal improvement from 11% of consumers surveyed indicating that their household makes no cash purchase on average to 15% of respondents indicating complete switch to digital transactions. Another category of those who used to use cash for 50-100% of their household purchases has dipped from 15% in 2021 to 8% this year. However, those spending 25-50% in cash without receipt has increased from 15% in 2021 to 18% in 2023. There is no change in the percentage of consumers making cash purchases for 5-25% of their household purchases.

82% of those surveyed who have used cash for purchases in the last 12 months have used it to pay for groceries, eating out and food delivery services

Some traders, despite having large volumes still prefer dealing in cash, primarily to evade taxes. Similarly, many of the street vendors and shopkeepers in tier 3 and 4 towns and rural India still refuse digital transactions or simply prefer dealing in cash. Then there is the consumer’s own ease of using cash. To understand where cash is still largely being used, the survey asked consumers “If you look at the last 12 months, for which categories of products have you spent/ paid a sizable portion in cash?” This query received 11,022 responses with 59% of the respondents indicating (1) groceries, eating out % food delivery; (3) 7% of respondents indicated buying long term assets or valuable items like property, jewelry, used vehicles, etc.; 4% of the respondents indicated 1 and 2 (buying gadgets like smartphone, laptop, etc.); 15% of respondents indicated 2 and 3 categories ; 15% of respondents indicated 1 and 3 categories; while 4% of respondents indicated 1,2 and 3 categories. In addition, 7% of those surveyed indicated “other” purchases not listed above and 4% gave no clear response. Data shows that 82% of those who have used cash for purchase in the last 12 months have used it to pay for groceries, eating out and food delivery.

Majority of respondents have used cash to pay domestic help, personal services, home repairs, etc., in the last 12 months

A large majority of people still continue to use cash for services like haircut, paying salary to household help or to their home repair contractor or getting an AC repaired. To understand how cash was being used to pay for services, the survey asked consumers “If you look at the last 12 months, for which categories of services have you paid in cash without receipt?” This query received 11,036 responses with 14% of respondents indicated (1) salaries of domestic staff; 18% of those surveyed indicated (3) personal services/ home repairs, etc.; 4% indicated 1 and 2 (travel) categories; 2% of respondents indicated 2 and 3 categories; 34% of respondents indicated 1 and 3 categories; 18% of respondents indicated 1,2 and 3 categories. In addition, 6% of respondents indicated “others” not listed above and 4% of respondents gave no clear response. Data shows that the majority of respondents have used cash to pay domestic help, personal services, home repairs, etc. Community feedback indicates that the high GST rate that serves as a driver for both vendors and consumers to transact in cash when it comes to services.

In summary, 7 years post demonetisation, cash in circulation in the Indian economy has increased nearly two times from 17 lakh crores to 33 lakh crores. At the same time, UPI has become part of daily life of many Indians leading to billions of digital payment transactions every year and reduction in cash transactions. However, cash is still being used heavily in big ticket transactions, especially property transactions with the survey finding that 76% of those who bought a property in the last 7 years had to pay a component of the price in cash. In fact, the cash component in property transactions is once again rising as this year only 24% indicated that they did not have to pay cash as against 30% of respondents two years back. Most household purchases of high value be it a vehicle or a gadget are now happening digitally and with a receipt which is a positive change. However, the survey finds that most consumers are still using cash to pay for groceries, eating out, food delivery as well as when it comes to paying for services like household help, home repairs, personal services, repair of whitegoods, etc. The community feedback indicates that for groceries, eating out, household help payments convenience is the driver while for services taxable at 18% GST rates, it is the taxation that is driving vendors and consumers to transact in cash.