Cash is (still) King

Around 8pm on 8 Nov. 2016, the then Prime Minister of India, Shri Narendra Modi appeared on Tv, a rare occurrence until then to address the nation. Even as countrymen were going about doing their daily chores, employees returning home, entrepreneurs and shopkeepers doing brisk business and Senior citizens catching up on dinner, came an announcement that not just stunned Indians in the country and abroad but sent shock waves through socio-economic segments, from a humble street vendor all the way to those living in bungalows or high rises. The PM said that high value denomination currency of Rs. 500 and Rs. 1,000 were banned for circulation and usage from midnight the same day and shall not be accepted as legal tender henceforth. Citizens can deposit the cash they have at home in bank accounts of the holders or their families or friends. Retailers could accept the demonitized cash until the same day midnight but not thereafter. This was not something that Indians had ever been used to heard of.

Retail chains like Big Bazaar and Shoppers Stop took advantage of the situation and announced extended shopping hours, that their doors were open until midnight. Gold retailers across the country, small or big saw customers pouring in to their shops with small pouches and gunny bags (sic) of cash to exchange for the beloved yellow material. Cash on Delivery, a popular way of paying for goods ordered online was not as popular back then, as it was today, lest those 4 hours could’ve been the “highest retail sale day” for many e-commerce companies. Customers went to nearby shops and bought anything they could lay their hands on, from 40-50 kg rice bags, hoarding them for several months, all the way to buying as many units of soap & shampoo, clothes and bedsheets and everything possible. Plastic and metal items, which do not have an expiry date, such as chairs and utensils were among the most bought, for obvious reasons. However, things fell flat on 9 Nov.

The retail Industry stared a dead end, with a stoic silence across retail stores in the country. Shopkeepers, especially the small and marginal ones were perplexed and worried, whether shoppers would even turn up henceforth, as 99% of their business was “cash & carry”. Semi- and Organised Retailers were less worried. Back in 1999 when the Retail Industry started to become organised, the cash to card ratio (at PoS) was 80:20 respectively. However, by 2016, the ratio was way different, around 40:70, and even higher at Retail Department store chains and speciality stores at Malls. Flight bookings which went 100% online by 2010 onwards had no major impact while Entertainment booking through apps for Cinemas and shows was already mostly digital currency, though the box office collections were mostly by cash.

All this, and more changed ever since India’s major demonitization in 2016. PayTM, a start-up which was trying to convince consumers to pay through digital currency was perhaps the biggest beneficiary. The company, funded by Softbank and others took full page Ads in newspapers in the upcoming days to give up cash and use digital payments, for ease, convenience and most importantly, to make India a robust digital economy. While Opposition parties slammed the idea of instant demonitization without advance notice, many people in the society welcomed the move as it was meant to address the key challenge of India back then and now, hoarding black money. Whether this problem has been resolved or not is still to unfold. But the impact on the Retail business has been profound, to say the least.

A few days back, someone shared on social media, a person seeking alms on the road with a UPI QR code. Much was spoken and shared about how India is marching ahead in it’s journey towards a complete Digital Economy. Another shared how small traders and roadside hawkers were now accepting PayTM or G-Pay with a single scan. In fact, mobile phone manufacturers made the QR Scanner a key feature in their upcoming models, so consumers can pay quite easily with a single swipe. The most organised retailers, including those selling luxury in India have moved almost 100% to digital payments, through credit cards, e-payments, UPI interfaces and third party FinTech apps such as Google Pay. Small and Marginal shopkeepers have a higher share of e-payments now than ever before, though cash remains elusive and is an intrinsic part of their receipts. GST implementation, which began a year later in 2017 have ensured a more transparent transaction today, between the Manufacturer, Retailer and the Customer. Therefore, acceptance and preference towards digital currency is at an all time high in India today.

But everything is not rosy. Cash to GDP Ratio today is higher than what it was before Demonitization. From 11% in 2016, it is now at 12.5% with the actual values growing from Rs. 15.1 trillion to Rs. 28.3 trillion today. In actual value, the proportion of cash in current times is significantly higher than anticipated. The proportion of high denomination currencies in circulation, that is Rs. 500 & Rs. 1,000 back then was 84%, which is today almost the same, with Rs. 500 & Rs. 2,000 notes. Above figures were shared y the apex bank of India, the RBI. On the other hand, UPI-led transactions today are at 7.7 trillion pm, as against a mere 1.4 trillion 5 years ago.

Clearly, Indians are favouring digital payments for many transactions not just shopping, but also for utility payments such as Insurance premium, Electricity Bills among others. however, cash remains the most favourite payment option and as the adage goes, is the King in current times, especially for the low and marginalised consumer segment. From routine grocery purchases to eating out in the nearby restaurants, consumers in the lower end of the spectrum seem to prefer paying with loose change and cash. Those shopping in the organised segments are clearly favouring more of digital payments, though they are well aware of scrutiny and to disclose their incomes in IT Returns. Card payments, especially through credit cards have touched an all time high during the recently concluded Deepavali season, a key shopping period across the country. Consumers continue to swipe their plastic unmindful of payment timelines, lured by cash back offers from their banks and retailers alike. All this has certainly increased the consumer spends significantly, no doubt. Retailers have reported a higher basket value at the point of sale a few months after Demonitisation that before, a clear indication that customers prefer to buy now and pay later. While much has been debated on the benefits of the big move by the Government, retailers, at least are not complaining.